In Brief...World News Review Can We Shrug Off Japan's Economic Crisis?

The fact that Japan's 12-year slump has fallen into a full-scale crisis is beginning to be realized by the world. The downward slide of various indicators in the second most powerful economy resembles the United States during the Great Depression of the 1930s.

It was once thought that Japan could buy its way out of financial trouble. Many believed the heavy debt from the nation's terrible banking system and the actuarial deceit of its postal- and insurer-based retirement systems was just Japan owing itself. However, Japan's economy isn't like Russia or Argentina or Thailand.

By comparison, Japan's massive economy is 42 times that of Thailand. Kenneth Courtis, vice chairman of Goldman Sachs in Asia, said Japan represents the "largest economic crisis since the 1930s." Royoji Musha, strategist for Deutsche Bank said the "...world is heading for a once in-a-century economic crisis." The Japanese are dedicated to saving their money, and have as much as $11 trillion socked away.

Unfortunately, Goldman Sachs estimates debts from household, corporate and government sectors to be around $30 trillion, which is six times Japan's gross national product (GNP). The U.S. ratio of debt to GNP is 2 to 1. Japan's situation is being made worse each month by an annual deflation rate of 4 percent. Deflation in the 1930s worsened the U.S. Depression. Already Japan's economic tsunami is being felt here in America. Toyotas are putting pressure on Detroit's prices. If Japan opted to devalue the yen, more pressure would fall on the United States and Europe.

Japan's four largest troubled banks alone have total claimed assets worth nearly $4 trillion. It has been predicted for over a decade that Japan could panic under its heavy debt, causing a run on the banks as depositors withdraw their savings. If this happened, its banks could be forced to call in overseas loans and create an economic contraction that would sweep around the world. It hasn't happened yet, and some economists don't think it will. However, reflect on the fall of Hokkaido Takushoku, a medium-size Japanese bank with assets worth $80 billion. Its collapse expanded Thailand's economic problems into a regional crisis.

Within a few months of the bank's failure, Japanese financial institutions pulled $118 billion out of the worldwide economy. The brunt of the impact was felt by South Korea, but other parts of Asia and eastern Europe were also affected. The crisis severely crippled South Korea, the world's 10th-largest economy. Is anyone out there alert to the potential problem? Most of the press is more concerned with Enron or the economic woes of Argentina.

There are some voices sounding an alarm, including Treasury Secretary Paul O'Neill. Former Federal Reserve Board head Paul Volcker says he can't recall in his career a touchier global economic situation. —Source: Forbes.