Bankruptcies Can Be a Good Thing — Just Ask Japan

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Would you believe I told you that bankruptcies could be a great thing for an economy? They can. Case in point, what’s happening in Japan right now? Getting questions from people, whoa, what’s going on with the Japanese bond yields? my God, it’s terrible. Yields on Tuesday went above 4%. It’s a 30 year high. Again, you also had a depreciation of their currency.

People are saying, my God, they called a snap election there. There’s all sorts of problems. What’s happening with their economy? Well, what Japan is allowing to have happen is that he’s allowing companies to go bankrupt. And that’s a good thing. That’s a fantastic thing. I’ve explained to people here on the program when it comes to recessions.

I describe recession as almost like the lymphatic system of the human body. You get out the gunk, you get out the problems. One of the things that we’ve decided to do here in this country is we decided to keep businesses afloat when they shouldn’t be afloat any longer. Case in point, go back to the auto makers. We were told that the sky was gonna fall and the world was gonna end.

if General Motors went bankrupt. my God, what about the suppliers? What about this? What about that? What about it? What about it? Somebody would have taken their place. not like people are not gonna buy cars anymore. When you allow, when you allow for weak companies to stay afloat through government subsidy, whatever it may be, it weakens your economy. I wanna go back.

This back to 1990s, we had the Asian financial crisis. I wrote a paper on this back at that point in time. Something, it exists not just in Japan, it’s also in Korea, South Korea as well. They call it the Chaebol. And these are companies that, yeah, we got them here. We’re basically too big to fail, but there’s a lot more of them there. Well-connected families, well-connected families, connected to banks, connected to governments.

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and they don’t allow them to die.

They don’t allow them to die. These are basically walking dead companies for the most part. They’re allowed to stay afloat. They get money from the government. They get help from the banks. Capital is flowing to these companies where it should be flowing somewhere else. Japan is finally waking up to this at this point in time. Yes, they have without a doubt, they have a debt problem.

250 % of their gross domestic product. Again, they’re trying to stimulate the economy to some degree. again, these legions of zombie companies that have been out there, they’re letting them go. Corporate bankruptcies are starting to surge in Japan. And that’s not a bad thing. That’s a good thing. That’s a net positive.

Again, whenever we do this, it’s another way of subsidizing. Capital flows to the wrong places. It goes where it shouldn’t. Companies have, some companies have lifespans if they don’t adjust and they don’t adapt, then that’s okay. That’s okay. Creative destruction, Joseph Schumpeter, allow it to take place. That’s the beauty. You do not want to have zombie companies walking around.

Again, do we do it here? Yes, we do. Not to the extent that they do in Asia. They start dealing with this, Japan can get back to actually growing again. Watchdogonwallstreet.com.