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5/17/12 Palaniappan Vairam

JapansBalance Sheet

Recession

11Palaniappan Vairam Sarathy, MBA, Asian


2/35


Characters

JapaneseHousehold

JapaneseIndustri

es

Japanese

Banks

JapaneseGovernme

nt

USAGovernme

nt



3/35


I want to improve my GDP, So let us not allow Yen toappreciate

Good Idea!I will make more

moneyfrom my exports.



4/35


Hey Japan! You cant undervalue yourcurrency

and dump your products in my market!Let your currency appreciate!

Hi USA! You are my biggestbuyer!

So Ill do what you ask me to

do,though I dont like it.



5/35


Hey Government! I am losing lot ofmoney

in the exchange ratedue to Yens appreciation!

Dont worry! I will ask banks to lendmoney

at low interest rates, people willborrow and

spend it to buy your products!You can make money from

domestic markets.



6/35


Banks are giving money at such a lowinterest!

Its right time to borrowandinvest instocks/property!



7/35


Stock/ Property Prices



8/35


Hey I need a new office;the property rates are rising

rapidly!

I should get my new officebefore the prices are too high!

Good decision!That building is

just 7 MillionYens!



9/35


Hey Banker! I decided to expand,I plan to buy a new office for 7

Million Yen.

Oh thats a gooddecision!Property prices arerising very high!Luckily for you

interest rates are solow, I will sanction

you a loan for 7Million Yen.



10/35


Stock/Property price Yen Value



11/35


Hey Central bank!

Prices are rising beyondcontrol

We got to stop the inflationbefore it goes totally out of

control.

Let us increase theinterestand control flow ofmoney!



12/35


The new interest rates aretoo high!

I cant afford to invest or buyany more!



13/35


Stock/Property Price



14/35


Property prices arecrashing!

Your 7 Million Yen -newoffice

building is worth 1Million Yenonly now!

Thats really bad!I have to assess mysituation now!



15/35


Hey Banker! Property valuesare crashing,

How bad is my situation?

Yeah your building isonly worth 1 Million

Yen now.But you got to repayall the 7Million Yen

you took as loan forthe building!



16/35


Balance Sheet

ASSET

LIABILITY

Office : 7 MillionYen

Notes Payable to Bank:7 Million Yen




17/35


Hey your Assets arelesser

than your Liability!You are Technically

Bankrupt!

Yeah, I am not goingto let any one know about

this!

I will repay my Liabilitiessilentlybefore any one knows

about it.



18/35


Balance Sheet

ASSET

LIABILITY







19/35


Hey you stillhave

lot of debt torepay!

Yeah, I am going todown size

and cut cost!



20/35


Hey lot of people are losingjobs!

Yes! The situation doesnt lookgood.I am going to save as much aspossible.



21/35


Bank

Deposits Lending

High Householdsavings

Low Industryborrowing



22/35


No

Thanks!

Hey Industries,we are lending at

interest rate close to0%, Please borrow

money from us!



23/35


Hey Interest rates

are close to 0%,shouldnt weinvest indomestic

productivityand make people

buy our products?

We still have lot of debt torepay!

Also mood of people is not

good,they are not buying anymore!

So we are not investing forsome time to come.


D d


24/35


Money

FlowSpendin

g:80 Yen

Household income

Savingsin

Bank

Income to

Someoneelse

Industry

borrowing

100Yen

20Yen

Investment toproduce:

20 Yen

80+20=100Yen

All 100 Yen are incirculation

100Yen

20YenHousehol

d incomeSavings

in

Bank

Income toSomeone

else

NoIndustryborrowin

g80Yen

Spending:80 Yen

80Yen

20+16=36YenHousehol

d incomeSavings

inBank

Income toSomeone

else

NoIndustryborrowin

g64Yen

Spending:64 Yen

Only 80 Yen incirculation

Only 64 Yen incirculation

DownwardSpiral

Money gets stagnated in thebanks 2424Palaniappan Vairam Sarathy, MBA, Asian


25/35


Hey Government!Money supply is

decreasingin downward spiral!

We have to stop thisbefore a disaster!

Thats great! Moneysupply

will increase andI will also earn interest

from the Govt.!

If Industriesare not borrowing,We will borrow !I will issue Govt.

bonds,you buy it with

yourun lendable

money



26/35


I have borrowedlot of money,

so I will build roads,bridges

and other welfareprojects,

so that you can get ajob!

Thank you Govt.! I will tryto earnas much as possible andsave it!



27/35


Bank

Deposits Lending

High Householdsavings

Governmentborrowing

Money Supply back in

control 2727Palaniappan Vairam Sarathy, MBA, Asian


28/35


Few years later.

Hey your exports are doinggood

for the past few years!

Yeah, thanks to myexports,

I have repaid all my

debts.Now, I will start

investing in assets!



29/35


Industries have paidof their debts

and started investing inassets.

But still they are notborrowing!They are investing with

their own savings!

Lets wait, I willborrow

from you tillIndustries

are confidentenough

to borrow.



30/35


One fine day.

We cannot keep oninvesting

with our savings!

True, we are doing good.We are confident of repaying

debts,

lets start borrowing moneyfor our investments!



31/35


Soon

I have saved more thanenough!

Me too! Lets start buyingstuff,its long time since Ispent well.



32/35


Finally people havestarted buying and

industryhas started borrowing. My

workis over now, I am notgoing to

borrow any more!

Yeah thats goodnews,

but you have torepay

all the money youhave

borrowed fromme!



33/35


I thought it was allover!

Now I have to figureout

how to repay themoney!



34/35


Reference and Further Study

Palaniappan Vairam 3434


35/35


Thank

you!

Palaniappan Vairam SarathyMBA

Cohort 7Asian Institute of Management

Makati, Philippines

3535Palaniappan Vairam Sarathy MBA Asian

Date post:	05-Apr-2018
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