Why Japan Could Take a Fall; Like Us, They're Mortgaging Their Future With Reckless Spending
Japan is America's number-one student. Unfortunately the lesson that it has been learning in recent years is a bad one: how to grow rich through greed.</br></br>As a result, the current Japanese prosperity, which pushed the Tokyo stock market to new highs last week, is, like the current United States prosperity, built upon a rickety foundation. In Japan that foundation is propped up by a superheated real estate market. In the United States the prop is a set of government policies that have made the dollar cheap and interest rates high. These supports could easily collapse with a thud heard from Bangkok to Bangor.</br></br>Despite the odds and the economists' predictions, the eight years of the Reagan administration have seen unprecedented economic growth in the free world. That prosperity, however, led by Japan and the United States, has been brought about largely by borrowing from the future. Greed, based on unrealistic expectations of the durability of short-term results, has acquired a momentum far beyond our ability to control it rationally. Government, corporations and individuals in both countries have collateralized their future, and borrowed against it, to generate cash to enjoy now.</br></br>The borrowing phenomenon is not, of course, new to the western world, but the extent and level of the credit society are unprecedented. Both the United States and Japan now spend approximately one-quarter of their government revenue just to pay the interest on their deficit-financing securities.</br></br>America's prodigality has been the subject of much learned as well as popular discussion. Less well understood, however, is the degree to which Japan has become similarly infected. Japan's corporations are now issuing stocks priced at 60 to 80 times earnings, compared with an average multiple of about 20 on the New York Stock Exchange. As a result, capital in Japan has become virtually free. Japan's consumers also have learned the use of plastic money-some 1.2 billion cards have been issued to an income-earning population of only 42 million.