The Little Book of the Shrinking Dollar: What You Can Do to Protect Your Money Now

The Myth of the Yen Miracle Revealed

By 1997, Japan was in deep trouble. The brakes began squealing on its years of growth—GDP growth—or as I like to put it, growth domestic deceit. You see, the government was mounting ever-higher budget deficits. Realizing it had to do something and fast, the government made modest cuts, resulting in economic free fall. Productivity? Growth? All slowed. Inflation ran up.

Worse fuel on the fire: Housing prices started falling in 1991 (and kept falling for the next 13 years straight).

Worried politicians wrung their hands. What can we do but spend to fix this ugly economy? But in 1998, things just got worse by all measures.

Between 1992 and 1999, the Japanese government launched 10 financial stimulus packages, and debt grew by $1.13 trillion. (In our latest crisis, our Federal stimulus packages took a similar tact, with gargantuan sums. Our Troubled Asset Relief Program (TARP) alone cost $356 billion, of which $118.5 billion has been paid back. The government spent more than $577.8 billion on things like the Cash for Clunkers program, tax relief, and other economic stimulus measures. Our Federal Reserve plunged $1.5 trillion into various credit facilities and bailouts, as well as debt and bond purchases.)

The real cost of financial stimulus is on full display here. Japan’s ratio of government debt to GDP soared from 60 percent in 1992 to 105 percent of GDP in 1999. You just can’t spend your way out of trouble!

Here’s the kicker, when you stimulate ...