Via shrIdhara vembu: When Japan went from poverty to be a leading industrial power, they let export surpluses pile up. Why is that a problem? Isn’t too much of a good thing a better thing? Such massive export surpluses have two issues, a) financial and b) real economy.
Happiness and demographics
Now the real economy effect of piling up export surpluses. Japan then (and broader East Asia now) developed what I call “over-employment” - my term for an obsessive focus on putting everyone to work. The trouble is no one has any time for kids and that destroys demographics. Japanese invented the concept of “karoshi” (death due the overwork) and South Koreans work even harder. Recently Jack Ma of Alibaba exhorted the Chinese to work even harder, export more! That leaves no time for kids. South Korea now has the lowest birthrate in the world. That’s the real economic consequence of piling up export surpluses, leading to “over-employment” and overwork.
East Asia has worked hard to deliver fine products for the rest of the world, piling up paper claims on the rest of the world, with no kids to enjoy that wealth. Japan has a lot of old people that die alone, a tragedy. Those massive export surpluses aren’t worth it. That brings up the notion of balance, the foundation of spiritual economics.
Credit surplus distortion
Financially, export surpluses become “reserve assets” at the central bank, as exporters exhange their (primarily) dollar earnings for domestic currency. Such swelling reserves at the central bank, through the money (credit!) multiplier effect, create a domestic credit boom. The result is that Japanese domestic bank assets (and liabilities!) become swollen and they became the largest banks by assets in the world by 1990 (Chinese major banks occupy that role today[ie 2020], through the same mechanism).
The massive credit boom distorts the domestic economy. The Japanese domestic credit boom (swollen reserves from export surpluses, multiplied 10x) resulted in a massive real estate bubble in the late 1980s, so big that it was said the Imperial Palace grounds in Tokyo was worth more than the entire land in the state of California! Japanese companies realized that real estate speculation and financial engineering (known as zaitech) were more profitable than their main line of business. That was the setting for the Japanese bust in the 1990s. Japan has still not recovered fully from that bust!