Japan’s Lost Decades, China’s Economy and the Eurozone, explained

9.1 China — The State-Capitalist Superpower

The idea in plain words

China runs capitalism with the state at the wheel: state-owned banks, a managed currency and capital controls, which are also why the yuan cannot yet rival the dollar as a reserve currency. Rapid growth is now strained by a property bust, debt and a shrinking population.

A closer look

Understanding the world economy while skipping China would be like studying the solar system while skipping Jupiter. Since Deng Xiaoping’s 1978 reforms opened the economy, China grew at nearly 10% a year for three decades, becoming the world’s factory (still ~30% of global manufacturing), largest exporter, largest trading partner of over 120 countries, and second-largest economy — largest by PPP (chapter 1.14: Purchasing Power Parity — Why GDP Rankings Deceive).

Recap

China runs capitalism with the state at the wheel: state-owned banks, managed currency and capital controls, which are also why the yuan cannot yet rival the dollar as a reserve currency. Rapid growth since 1978 is now strained by a property bust, local-government debt, deflation, tariffs and a population that began shrinking in 2022.

9.2 Japan’s Lost Decades — When an Economy Stops

The idea in plain words

Japan’s 1980s credit boom ended when the Nikkei peaked on December 29, 1989, and then fell about 82%, leaving banks that hid losses behind zombie companies. Deflation then outlasted every emergency tool the Bank of Japan invented.

A closer look

The 1980s bubble was spectacular — cheap credit flooded into stocks and land after the 1985 Plaza Accord — an agreement among the US, Japan, West Germany, France, and the UK, signed at New York’s Plaza Hotel, to deliberately weaken the overvalued dollar. The yen nearly doubled in value within three years, and the Bank of Japan slashed interest rates to cushion its suddenly less competitive exporters — and that cheap money fed the boom until the Nikkei index closed at 38,915.87 on December 29, 1989 (its intraday high that day was 38,957.44). Then the central bank raised rates, and both markets collapsed: the Nikkei fell about 82%, to an intraday low of 6,994.90 in October 2008, urban land followed, and banks were left holding mountains of loans secured against evaporated collateral.

Recap

Japan’s 1980s credit boom ended when the Nikkei peaked at 38,915.87 on December 29, 1989, and fell about 82% to an intraday low in 2008, leaving banks that hid losses behind zombie companies. Deflation then outlasted every emergency tool the Bank of Japan invented, while debt above 200% of GDP stayed manageable because it is owed in yen.

9.3 The Eurozone — One Currency, Twenty-One Governments

The idea in plain words

The euro joined twenty-one countries in one monetary policy without a fiscal union, so a member lost both its exchange rate and a central bank able to print in a crisis. Greece’s crisis was the stress test.

A closer look

The euro (launched 1999) is history’s boldest monetary experiment: a currency union without a fiscal union. Members surrender their exchange rate and their printing press to the European Central Bank, but keep national budgets. The design removed two classic shock absorbers at once — a struggling member can no longer devalue its currency to regain competitiveness, nor rely on a central bank of its own as guaranteed lender of last resort. In the boom years this flaw hid: markets lent to Greece at nearly German rates, as if the union had equalized risk.

What the full article covers

In the full article I take you through these sections:

■9.1 China — The State-Capitalist Superpower

■9.2 Japan’s Lost Decades — When an Economy Stops

■9.3 The Eurozone — One Currency, Twenty-One Governments

It includes a recap, a reveal-on-click quiz and the official sources behind every figure.