Bubble

During our amateurish discussion on world economy, I was trying to pacify Vivian, "The bear market won't last long - it is at most a year or two."

My wife was not easily moved, "Japan took 20 years and it has not really recovered yet."

Very true. Let's see some educated descriptions:

"With more money in banks, loans and credit became easier to obtain, and with Japan running large trade surpluses, the yen appreciated against foreign currencies. This allowed local companies to invest in capital resources much more easily than their competitors overseas, which reduced the price of Japanese-made goods and widened the trade surplus further. And, with the yen appreciating, financial assets became very lucrative.

With so much money readily available for investment, speculation was inevitable, particularly in the stock market and the real estate market ... banks granted increasingly risky loans.

Investments were increasingly directed out of the country, and manufacturing firms lost some degree of their technological edge. As Japanese products became less competitive overseas, the low consumption rate began to bear on the economy, causing a deflationary spiral."

(I copy it from the article Japanese Asset Price Bubble of Wikipedia.)

It looks familiar, eh ? If we change the term Japan to China, and Yen to RMB, for sure many of us would not sleep well tonight.

PS. Of course our companies have no technical edge to lose - they become less competitive because of the lack of creditability.