Unending Deflation in Japan

I have numerous friends in Japan. It is an amazing society in many ways, perhaps the most unique in the world.

For a long time I have been concerned about the Japanese economy.

This recent quote puts things into perspective:

"Japan's core consumer price index dropped 1.1% from a year earlier in September, the Ministry of Internal Affairs and Communications said, making the 19th straight month of decline. The unrelenting slide in prices highlights how Prime Minister Naoto Kan's government has yet to gain a foothold in its fight against deflation, after declaring the battle a top priority."

Monahan, Andrew, 2010. Japanese production falls as deflation tightens grip. The Wall Street Journal, Oct. 29.

Folks in the US need to pay attention to the potentially devastating effects of deflation. Historically, in some cases America has undergone long periods of modest economic growth when recovering from a crash caused by too much speculation. As an example, I wrote the following blog post earlier this year:

1937

Japan has undergone almost 20 years of deflation and weak economic growth. There have been many changes to Japanese society as a consequence of these developments. The lack of growth by the third largest worldwide economy has affected the global balance of trade in ways that as of yet are still not completely understood.

If America experiences deflation, the same fate is possible ... a long period of declining prices and little economic growth.