Avrum D. Lank One of the most interesting things about watching an economy is seeing how in the long run, it always punishes lies. Economies constantly are called on to mediate fights between opposites - companies trying to maximize profits, workers seeking the highest wages and consumers looking for the best deal. When an economy is able to deal with things as they really are, rather than how participants wish they were, it usually finds a solution acceptable to everyone. When economies are built on wishful thinking or lies, they do not make such deals, and trouble follows.
Japan is the prime example.
For almost 11 years, the Japanese economy has been a basket case. It has never recovered from an overheated real estate market in the 1980s that saw banks lend on horribly inflated land values, often to sister corporations. When those values crashed, the banks ended up with vast portfolios of bad loans, many of which are still carried as assets on their balance sheets. Economies cannot stand a decade-long lie, and the value of Japanese bank balance sheets has been a lie for at least that long. Finally, last week, the Japanese government began to take tentative steps to address the problem in a disciplined manner.