William Pesek, the savvy Asia columnist for Bloomberg, reports - in his latest column (see below) - my views about the structural crisis faced by Japan that I outlined in a 1996 paper titled “Japan’s Economic Crisis”. Thirteen years later Japan is entering another severe slump that looks like even worse than that of other advanced economies: while in US, Europe and some other advanced economies and China the second derivative of growth and of other economic indicators is turning closer to becoming eventually positive rather than negative (i.e. growth is still negative but GDP may be falling at a decelerating – rather than accelerating - rate) in Japan is still highly negative (i.e. the fall is accelerating and looking like a free fall, a severe case of stag-deflation).

The sad case of Japan free fall is a cautionary tale of what happens when a high flying economy has a real estate and equity bubble that goes bust and avoids for too long doing the painful structural reforms and clean-up of the financial system that is necessary to avoid a long-term L-shaped near depression. Japan had over a decade of stagnation and deflation, then a mild sub-par growth recovery that lasted only three years and is now spinning into another severe stag-deflation. Keep alive zombie banks and zombie corporations whose balance sheets and debts are not restructured as in Japan (zombie banks and zombie insolvent households in the US today) and you end up in a L-shaped near depression.

Let me explain next in this note why the US and the global economy face the risk of an L-shaped near depression if appropriate policy actions are not undertaken…