How the West might avoid a Japan-style slump
It's still possible that Britain will follow Japan into a long, drawn-out deflationary hell. But there's one thing we have that the Japanese didn't: the continuing availability of easy credit.
You can't open a paper these days without seeing something about how the West is turning into Japan.
We are apparently on the verge of setting off on a long and depressing deflationary journey during which bank lending will contract, consumer credit will disappear, prices will keep falling, stock markets will collapse and no one will ever buy a new dress again.
Regular readers will know that I have enormous sympathy with this view. But there are a few things that do make me wonder if it will really unfold in the same way as it has for the poor Japanese.
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
One of the main things holding back consumer spending in Japan in the 1990s was the utter lack of credit availability. When I first arrived in Tokyo in 1992 credit cards were almost unheard of. You could use an Amex in a couple of extra smart shops but that really was about it.
The same was true when I left six years later. If ordinary Japanese people wanted money and couldn't borrow it from a bank (which generally you couldn't) they went to a consumer finance company where they paid 30% odd for the pleasure.
But that wasn't a particularly socially acceptable thing to be doing: it was a marginal activity for the semi desperate. Here, in the middle of our own banking crisis, things are completely different.
Credit cards are not only common and universally accepted even when paying the tiniest of bills (and household bills for that matter) but they still come on incredibly easy terms.
Take the most recent offering from the AA. Get one of these and you can buy what you like and pay no interest for 12 months. The same goes for the Tesco Clubcard credit card which also gives you 0% for nine months on your balance transfers.
My colleague Ruth Jackson wrote about more of these deals this week, but the point is that, had a Japanese consumer seen the like of them back in 1995, she would have thought she'd somehow arrived in shopping heaven.
I'm not sure quite what to back out from this thought in terms of how our banking crisis driven recession will unfold from here. But, be it a good or a bad thing, 0% interest for 12 months just doesn't sound very deflationary does it?
Sign up to Money Morning
Our team, led by award winning editors, is dedicated to delivering you the top news, analysis, and guides to help you manage your money, grow your investments and build wealth.
Merryn Somerset Webb started her career in Tokyo at public broadcaster NHK before becoming a Japanese equity broker at what was then Warburgs. She went on to work at SBC and UBS without moving from her desk in Kamiyacho (it was the age of mergers).
After five years in Japan she returned to work in the UK at Paribas. This soon became BNP Paribas. Again, no desk move was required. On leaving the City, Merryn helped The Week magazine with its City pages before becoming the launch editor of MoneyWeek in 2000 and taking on columns first in the Sunday Times and then in 2009 in the Financial Times
Twenty years on, MoneyWeek is the best-selling financial magazine in the UK. Merryn was its Editor in Chief until 2022. She is now a senior columnist at Bloomberg and host of the Merryn Talks Money podcast - but still writes for Moneyweek monthly.
Merryn is also is a non executive director of two investment trusts – BlackRock Throgmorton, and the Murray Income Investment Trust.
-
A junior ISA could turn your child’s pocket money into thousands of pounds
Persuading your child to put their pocket money in a junior ISA might be difficult, but the pennies could quickly grow into pounds – and teach them a valuable lesson about money
By Katie Williams Published
-
Cost of Christmas dinner jumps 6.5% as grocery price inflation rises again
The average Christmas dinner for four now costs £32.57 as grocery price inflation increases - but what does it mean for interest rates?
By Chris Newlands Published
-
Beating inflation takes more luck than skill – but are we about to get lucky?
Opinion The US Federal Reserve managed to beat inflation in the 1980s. But much of that was down to pure luck. Thankfully, says Merryn Somerset Webb, the Bank of England may be about to get lucky.
By Merryn Somerset Webb Published
-
Rishi Sunak can’t fix all our problems – so why try?
Opinion Rishi Sunak’s Spring Statement is an attempt to plaster over problems the chancellor can’t fix. So should he even bother trying, asks Merryn Somerset Webb?
By Merryn Somerset Webb Published
-
Young people are becoming a scarce resource – we should value them more highly
Opinion In the last two years adults have been bizarrely unkind to children and young people. That doesn’t bode well for the future, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
Ask for a pay rise – everyone else is
Opinion As inflation bites and the labour market remains tight, many of the nation's employees are asking for a pay rise. Merryn Somerset Webb explains why you should do that too.
By Merryn Somerset Webb Published
-
Why central banks should stick to controlling inflation
Opinion The world’s central bankers are stepping out of their traditional roles and becoming much more political. That’s a mistake, says Merryn Somerset Webb.
By Merryn Somerset Webb Published
-
How St Ives became St Tropez as the recovery drives prices sky high
Opinion Merryn Somerset Webb finds herself at the epicentre of Britain’s V-shaped recovery as pent-up demand flows straight into Cornwall’s restaurants and beaches.
By Merryn Somerset Webb Published
-
The real problem of Universal Basic Income (UBI)
Merryn's Blog April employment numbers showed 75 per cent fewer people in the US returned to employment compared to expectations. Merryn Somerset-Webb explains how excessive government support is causing a shortage of labour.
By Merryn Somerset Webb Published
-
Why an ageing population is not necessarily the disaster many people think it is
Opinion We’ve got used to the idea that an ageing population is a bad thing. But that’s not necessarily true, says Merryn Somerset Webb.
By Merryn Somerset Webb Published