[Author’s Name]
[Institution’s Name]
Essay on Why Japanese Economy Did Not Grow In The Past Decade
Thesis:
The features of the Japanese economy have changed greatly in the 1990s compared to the 1980s. The economy shifted to an extremely low growth trend and its continuous depression has caused international concern among the advanced countries. A major cause of these difficulties was clearly the swell of the huge bubble in the speculative trading of shares and real estate in the late 1980s, and its subsequent burst. This resulted in an enormous amount of bad loans for Japanese financial institutions, generated a credit crunch, worsened the assets of firms and households, and caused uninterrupted business failures and a vicious circle of asset deflation.
Analysis
The swelling of bubbles caused by mobilizing the ability of the credit system to expand, and their resultant destructive burst, have been seen frequently in the history of capitalism — for example, the tulip crisis in the Netherlands and the South Sea bubble in the UK in the nascent period of capitalism in the seventeenth and eighteenth centuries, the cyclical crises in the nineteenth century, and the great crisis of the 1930s. In the world economy since the late 1980s, the tendency of capitalism to cause speculative bubbles that eventually burst has reappeared. The Japanese economy could not escape it. The burst of speculative bubbles may be understood at an abstract level by Minsky's post-Keynesian financial instability hypothesis.
If we follow this hypothesis, firms and individuals in the Japanese economy in the late 1980s started from a position of hedge finance, in which the cash flow from assets held is expected to exceed the cash flow arising from liabilities in every period. Then, increasing numbers of them moved to speculative finance, in which the cash flow from assets in the near future falls short of near-term contracted payments, but expected cash receipts in the longer term....
