Is the US turning into Japan? Probably yes: In 3 nice charts...

A picture tells 1,000 words (or so they say). So what about 6 pictures? (Go - quick maths!). Much has been said about the many problems facing the US economy after our battle with Covid over the past year +.  Based on what I have seen/read, here are the top issues that seem to pop up over and over again in the financial press/media:

• government debt
• labor shortages/labor force participation
• inflation

It is striking to me that in some respects the US is turning more and more into a clone of Japan. Most would push back and say no way. Our economy is much more vibrant and will continue to grow for years to come, unlike that of the Land of the Rising Sun. I beg to differ. Let us see how that could be the case in a couple of charts.

First, we know that the US has had to print a tremendous amount of money over the past 12-18 months (close to $6trillion) in order to help us fight the economic devastation of the economic slowdown brought on by Covid 19. As such our Debt to GDP has risen to well above 100% of GDP. 

The graphic above shows the debt to GDP ratios for countries that provide the information to the IMF. Dark red is high levels, green is below 50%. Japan has been a world leader since the 1990s with debt/GDP ratios above 100% (and now even above 200%). The US sits around 11th at the moment with a level of 133% (and rising). If the graph above is a bit hard to read, here is the list of top 10 countries. Not a very flattering list (although many are beautiful places to visit!):

Secondly, much has been written about how Covid has hurt the labor force participation rate, even as the economy has begun to reopen. The reasons for this are not very clear. One thing is for sure, people are not very keen to get back to work. This is in contrast to stories that often go around stating that a large portion of Americans don't have $400 in savings or cannot go without a paycheck. As a result, these are slightly contradictory. We know that many states will be cutting back/eliminating unemployment subsidies over the months to come, therefore maybe we will see an uptick in employment. However with corporations struggling to hire, wages on the rise, and people getting more comfortable venturing back out again, it is interesting to note that the participation rate is not moving back up. On the flip side, stock markets are near all time highs, housing prices are booming, and other asset classes are as well. Therefore it could be possible that some people are living off of passive income rather than looking to get back into W2 type of employment situations.

The US labor force participation rate almost matches that of the Japan's!

Japan labor force participation rate is between 61.5 to 62.5%

US labor force participation rate is right around 61.5%

Finally, in both cases the population is aging. Now Japan has taken the global lead in this area. Their population is already on the decline, having peaked in around 2010 or so and now on the decline. The US is still a country that generally welcome immigrants and hence we shouldn't expect to see actual declines, however the growth is slowing and certainly amongst certain segments of the population, we are much close to a Japan population pyramid than that of Nigeria (or pick any other growth nation). Check these out:

The next few years/decades will tell the story, however it very could be a case that the US will begin to mimic Japan in more ways than many would like to believe...