What We Can Learn from Japan and Canada

In the last few weeks, I’ve been discussing how your financial future could be impacted by our national debt, our changing demographics, and our leaders’ reluctance to act decisively. 

You may be thinking, “Is there any way out, short of national bankruptcy?”

One, I don’t believe the United States will ever declare bankruptcy. Two, I do see a way out. But it won’t be pain free.

Other countries have been down this path. We’d be wise to learn from their experiences.

Take Japan. In the 1980s, we in the U.S. were envious of Japan’s booming economy and obsessed with its “obviously superior” management strategies. Companies like Sony and Toyota were all the rage. Real estate in Tokyo was going for $139,000 per square foot! 

Then the bubble popped. 

Consider that in 1995, the U.S. had a $7.6 trillion economy, while Japan’s was about $5.5 trillion. Today the U.S. economy is around $27 trillion. Japan’s GDP, on the other hand, has gone in reverse, falling to around $4.3 trillion. 

For forty years, Japan has tried to “stimulate” its way out of their deep economic slump, with greater and greater amounts of debt. Now Japanese debt is double that of their national economy! 

For the record, our national debt has risen to $32 trillion, about 120% of our GDP, mostly as a result of our nation’s COVID-19 stimulus response.

At present, we seem to be taking the Japanese approach to “fixing” our economic problems. 

But there’s another option.

Consider Canada. 

Thirty years ago, our neighbors to the north were in such bad economic shape that the Wall Street Journal named the country “an honorary member of the third world in the unmanageability of its debt problem.”

According to David Hay, Chief Investment Officer of Evergreen Capital Management, “by the 1990s, Canada had become one of the developed world’s most socialized economies, with the government accounting for 53% of the country’s GDP.” 

When the world began to doubt their ability to repay their debt, interest rates on that debt skyrocketed. Canada actually lost their AAA bond rating! The country was finally embarrassed and scared enough to take action. 

Radical action.

In 1995, the Liberal Party (that’s not a typo) slashed program spending, cut funding to the provinces, reduced government employment by 14% (can you imagine that here?), trimmed welfare, and chopped the Canadian equivalent of Social Security. 

Critics screamed that all this austerity would destroy the economy. Instead, Canada’s economy grew at 3.3% per year (at the time the developed-world was averaging 2.7% growth).

According to Hay, “Canada achieved stunning progress in a mere three years. They then went on to produce 11 straight budget surpluses. This allowed our northern neighbors to reduce their federal debt from 80% of GDP to 45%.”

“Canada’s experience,” Hay continues, “emphatically demonstrates that replacing bad policies with good ones leads to dramatic and rapid improvement, with the shift to financial soundness restoring confidence and actually boosting long-term growth.”

I suspect we will not be led to higher financial ground by an economic philosophy or a political victory. It likely will take a fiscal crisis (such as when Canada lost its AAA credit rating) to scare our leaders into finally confronting harsh economic realities. 

No matter which direction we choose, we will not avoid pain. But short-term pain avoidance is never a good substitute for long-term financial soundness. 

Just ask Japan.

And while all this is playing out nationally, if you’d like some help figuring out your personal retirement future—specifically how to turn your retirement assets into regular retirement income, email me at bmoore@argentadvisors.com. I’ll send you a link to take the RISA® Profile. (RISA® stands for Retirement Income Style Awareness®.) 

This short quiz is FREE, and it can help you build a retirement income plan that aligns with your desires and personality.

Argent Advisors, Inc. is an SEC-registered investment adviser. A copy of our current written disclosure statement discussing our advisory services and fees is available upon request. Please See Important Disclosure Information here.

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