Fiscal Cliff – A Lesson From JapanSeeking Alpha #Fiscal_CliffDecember 15, 2018
A look at Japan’s economic history provides a very sobering look at what could happen if we do go over our fiscal cliff.
The real danger arising from going over the fiscal cliff is that we could very easily go the way of Japan, which has seen 2 decades of lost economic growth and counting.
This is a chart of Japan’s money supply growth which shrank severely between 1990 and 1992 when Japan went off their fiscal cliff.
But look what happened to their GDP growth over the same time.
If we do go over the fiscal cliff and see a massive reduction in our own money supply growth, I would expect the U.S. dollar to strengthen, especially against the G7 currencies.
The 10 year Japanese government bond went from yielding 8% in 1991 to 0.69% at present.
If the parallel between Japan and the U.S. is true and our GDP growth suffers, the 10 year Treasury note could very easily go down to 1%.
Our equity market would suffer not just from a drop in economic growth, but also from taxes on dividends.
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