The big commercial groups own Japan’s production and these groups borrowed money from big Japanese banks. In the 70s and 80s as stock prices went up and savings went down. Japan entered an age of consumption and they loved it. Japanese stocks between 1971-85 went up 500 percent, 1985 – 1990 stocks had tripled, 1990 stocks peaked and within an 18 month period dropped 30 percent. Japan became the largest net creditor in the world. Japan was different from America in the following ways: 1. Japanese saved 13 percent of their income 2. Japanese believed in the philosophy of “WA”, the belief all citizens must stick together. 3. Japanese were ashamed if they let the group down. 4. Japanese worked fewer hours and paid lower taxes than Americans. 5. Japan had a well functioning social service system. 6. Japanese women lived longer than any other group in the world.

In 1980, Japan had become an economic marvel, a self-sufficient economy. However, the Yen rose 40 percent and exports were twice as expensive, corporate profits were in decline, causing the GDP to cut in half. The Bank of Japan reacted cutting 1986 rats to 3 percent. Stocks became an obsession for the Japanese investor.

In 1987, Nippon Telephone and Telegraph (NTT) went public. When the Japanese government offered NTT, 10 million people applied to own shares in NTT without knowing the price. Japanese wanted to buy Japan. Bonner says, the public had a strong sense of confidence and the people thought Japanese collective capitalism was permanently successful.

In 1987, share prices rose, land prices rose over four times the property value of all the United States, multigenerational loans emerged, a new people started consuming and had a taste for luxury items. This new group of wealthy people loved consumption.

In 1985 the dollar equaled 122 yen. The Japanese government thought the dollar was too low and cut rates to 2.5 percent hoping Japanese companies would become more competitive. The interest rate cut pushed NTT valuations to $376 billion, Japan Air Lines traded at 400 P/E, Fishery and Forestry traded at 319 P/E, and the shipping industry traded at 170 P/E.

The new generation of government spending created by credit could not last forever. Debt peaked at 130 percent of GDP. The credit financed a spending binge. From 1985-1990, bank-lending rose by $724 billion and consumer credit card rose 700 percent. 95% of the credit was domestically owned. Japan was a net creditor to the rest of the world amounting to 10 percent of GDP. Credit fueled buying.

Companies paid no extra salaries. Credit sales appeared in the bottom line as company profits. Credit lead to higher sales, higher profits, and all this sponsored the belief that demand was increase and supply should expand. So new factories were created, new products offered, and new employees hired. Consumer spent their savings, but dis-saving could not last forever. A decisive moment occurred for no particular reason when spending could not continue. The confidence felt during borrowing and spending freely ebbed away. Japan started to feel deflation forces. The economy contracted with fewer new hires, sales and prices dropped, investors unload stocks at lower prices, overtime was reduced, new expansion projects were set aside, and a new spirit of consumer spending restriction set in; a new spirit of thrift, bankruptcy, and debt cancellation took over.

In 1990, the Nikkei fell 5 percent in 3 days, in Feb the Nikkei dropped 4.3 percent in 3 days, Long Term government bonds fell to 7.3 percent; commercial banks raised lending prime to 6.5 percent; Bank of Japan raised the discount rate to 5 percent; stocks continued to fall; the market raised concerns over oil prices caused by the crisis in Kuwait and stock prices dropped 11 percent in one day; and the Bank of Japan raised the discount rate to 6 percent.

In 1991, the Bank of Japan initiated a loosening monetary policy; the discount rate was cut from 6 to 5.5 percent and by Sep 1993 the discount rate had fallen to 1.75 percent and by 1995 the rate approached zero. As the bank rate fell the loans loss reserves mounted and in 1993 the central bank wrote off 4.3 trillion yen; by 1994 another 5.76 trillion yen was wrote off; and in 2003 Mizuho Holdings announced losses of 1,950 billion yen. In 1994, consumer prices began to fall; prices deflated for the first time since WWII; consumers start spending at 2nd hand stores; banks slowed down issuing of loans; employers reduced salaries. Between 1992-1995 Japan erased 17 years of stock market gains. From 1984 over the next 11 years, investor lost 75 percent of their money; fortunes were ruined, the wealth slipped away, and unemployment rose to 5 percent from nonexistent. Japan’s corporate debt was 225 percent of GDP verse 55 percent of GDP for America. U.S companies were in better shape during the 90s because Japanese money was moving to America.