Dangerous Minds pal Charles Hugh Smith has posted an essential essay to read today at Of Two Minds if you want to understand the voter’s revolution that just occurred in Japan. The ruling party, the Liberal Democratic Party’s (LDP) is out, the Democratic Party of Japan (DPJ) is in and over 50 years of domestic and foreign policy is about to be turned on its head:

Transparency has no place in central planning. The major banks were crippled with massive bad debts, yet the planners moved glacially to force write-offs and renunciation of impaired debt. Even now, no one really knows how much uncollectable debt remains on the books in Japan, Inc.

One reason is cultural. Declaring a bank insolvent is a major loss of face for everyone involved. Thus the preferred solution was to keep “zombie banks” alive as a face-saving measure.

The tricks used were plentiful and clever. Say a commercial real estate loan went south and the borrower stopped paying. Hmm, that looks bad; why not loan the firm more money, as long as they agreed to use part of it to make some token payments which would allow the bank to keep the loan off the “in default” ledger?

Never mind the additional loans only made matters worse; face was saved and time was bought.

After 20 years of malaise, the citizenry’s patience finally ran out. Things are dire for the Japanese economy and nation: the birth rates have fallen dramatically, social security costs on the exploding elderly population are climbing, and an entire generation of younger workers has been relegated to dead-end part-time jobs at 7-11. Like other global manufacturers, to remain competitive Japan’s firms moved production to China and other parts of Asia; automation in Japanese factories eliminated many of the remaining domestic jobs.

Japan’s Bloodless Coup: Devolution of the Export/Central Planning Model