Japan's Whiplash

Edward Hugh has a good summary of what he calls Japan's "unimaginable" contraction -- the one which resulted in that 12.7% annualized fall in GDP in the fourth quarter.

One important lesson, here, is that it's foolish placing much faith in mean-reversion. There's still a feeling out there that, yes, we had a few years of bubble and exess, and surely that bubble needs to be popped, but then we can get "back to normal". Well, it's been 20 years in Japan since its bubble burst, and it seems further away from recovery than ever.

Of course, Japan's key role in the carry trade tied it in to the global bubble and helped expose it to sharp and painful unwindings. And there's nothing worse for an exporter than the double whammy of a strengthening currency with weakening global demand.

But more generally, as we saw in Richard Florida's Atlantic article, the worst repurcussions of a collapsing complex system can -- and probably will -- be felt in less-than-obvious places. A rough beast, its hour come round at last, is being born somewhere. But maybe not where you think.