Whitney Tilson: Here Are Three Reasons The US Is Not Like Japan

Many voices have been complaining that the US is headed down the same path Japan trodded fatefully down 20 years ago.

So we asked Whitney Tilson, the hedge fund manager of T2 Partners, to explain how the US, which is about to issue a second wave of quantitative easing, is different.

He basically summed everything up in one well-traveled factoid:

“At one point, the land under the imperial palace in Tokyo was valued more than all of the land in California, as an example.”

But he also went into more detail.

“For three reasons,” he said, “I think the odds are less than 5% that the US will end up with a Japan-style 20 years of deflation.”

  1. Japan had a bubble that relative to the size of Japan was massively greater than ours.  Their real estate bubble and the amount of leverage that built up in their system was much bigger than ours, he explains. Our bubble was bigger in terms of its overall size, but we’re a much bigger country. We have more than three times the GDP of Japan. We are a much bigger, much wealthier country. In sum, they had a much more extreme both stock market and real estate bubble.
  2. The US is a more vibrant country. Capitalism in the US is more open and free. Entreprenuerialism in the US is inspired, alive and well.
  3. The US is writing down loans faster. “We are 60-70% through our writedowns 2-3 years into the crisis,” says Tilson. Meanwhile “Japan still isn’t 60% through, 20 years later.” They should be writing down more aggressively [in the US], he says, but they are writing things down. 

Great news, right? Not so fast.

The US will spend years muddling through this mess, says Tilson, who expects 2-7 years of feeble economic growth.

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