CNBC's Santelli Warns U.S. 'Could End Up Worse than Japan' Facing a Lost Decade

June 24th, 2010 4:10 PM

Fresh off his Tea Party cover story in the June 24 Weekly Standard, CNBC's Rick Santelli foresees what could be classified as an economic black hole for the United States of America.

On the network's June 24 broadcast of "Strategy Session," the CME Group reporter explained how the country could be headed down the same path and face the economic calamity the Japanese faced in what is known as the "lost decade." That period, from 1991-2000, was one which the Asian nation failed to grow economically despite countless efforts by the government to intervene. But as Santelli explained - the U.S. version of Japanese economic policies could result in Greek-style austerity measures.

"The notion that we are turning into Japan has been something talked about on this floor for probably a year and a half," Santelli said. "What changes though, is that it is now a toss up between Japan and Greece and trust me the eventual solutions or recommendations for avoiding the pitfalls of either are completely different strategies. A lot of Japanese say, ‘More Keynesian, more stimulus, spend, spend, spend, spend, spend.' And the other side of the equation says, ‘Well then, you are going turn into Greece.' Where does the truth lie? One thing I can tell you is, is that demographics are a big issue in this story as well. The Japanese have a demographic time bomb similar to the U.S. in terms of underfunded pensions and liabilities."

But according to "Strategy Session" anchor David Faber, the United States doesn't face the same demographic obstacles as Japan, which has an aging population.

"They also have a much older population," Faber said. "I mean the fact is with our immigration patterns, with our birth patterns - we're at a much better demographic point than they are, Rick - to be fair. You know, I hate to even use this but it's true - they sell more adult diapers in that country than they do baby diapers. We don't have that problem, thankfully."

However, as far monetary policy is concerned, the United States is positioned much differently than Japan because the world uses the dollar as a reserve currency. And that makes financing government debt much easier - but it also puts the United States in a potentially much more untenable position as well.

"We could end up worse than Japan and I'll tell you why," Santelli said. "When Japan had their horrible decade and they were doing the sterilization and trying to print Yen, they were also issuing a pretty significant amount of debt but who was buying the Japanese debt? The Japanese. Now we have a reserve currency, so who's buying our debt? Well, pretty much the rest of the world. People might say, ‘Well that's a great thing, we could monetize it.' And that's where the trouble lies. Go to what Steve said - our government is a free-for-all of dumb ideas. And the fact is, if you have interest rates this low and a reserve currency, in a world that keeps wanting to eat in what turns out to be a cruddy cake - where does that leave us when we finally figure it out?"