Mt. Fuji - Japan

The Telegraph reports that Japan is slipping into a deflationary spiral. Evidence of similar deflationary trends is appearing in Europe and the United States, as well, despite the general opinion that recent US Government actions have been inflationary. Deflation is a contraction of the money supply, which includes both money and credit. Credit destruction has been occurring so quickly that government expansion of the supply of real money has so far had no inflationary effect.

Japan chose to keep its big banks alive after the 1989 crisis instead of letting them fail so small, better-managed competitors could take their place. The United States has apparently chosen to follow the same path. It’s been twenty years with no real recovery in sight for Japan – how long will the United States have to wait?