Sunday, February 15, 2009

Our economic crisis: Worse than Japan?

The Economist doesn't share my optimism:
Today’s mess in America is as big as Japan’s—and in some ways harder to fix.

This crisis, like most others in rich countries, emerged from a property bubble and a credit boom. The scale of the bubble—a doubling of house prices in five years—was about as big in America’s ten largest cities as it was in Japan’s metropolises. But nationwide, house prices rose further in America and Britain than they did in Japan (see first chart). ...

What is worse, today’s bust is not just about banking. America faces twin financial crashes (as, to a lesser degree, do other Anglo-Saxon countries): one in the regulated banking sector and a simultaneous collapse of the “shadow banking system”, the universe of hedge funds and investment banks responsible for much of the recent securitisation boom as well as for the sharp rise in financial leverage.

Add all this together and the ease with which American policymakers dismiss Japan’s experience is probably misplaced. Japan’s outcome—a decade in which growth averaged 1% a year and gross government debt rose by 80 percentage points of GDP—was not one to be proud of. But given the magnitude of today’s mess, it may soon seem not that bad after all.
The full article has a lot more.


  1. I think that there is definitely something to be said here:

    "Add all this together and the ease with which American policymakers dismiss Japan’s experience is probably misplaced."

    Since policy makers are worried about deflation, I worry less. But since policymakers are not worried about a lost decade of growth, I worry more.


  2. Lance needs to write the economist and let them know that it isn't possible to have a bubble in housing, according to a definition of "bubble" he made up himself of course.

    Oh yeah, and there is nothing to worry about, this is a normal cycle and we bottomed out back in 2007.

  3. "Lance needs to write the economist"

    Is there something more meaningful in your life than Lance?

  4. Smacking lance around is good for a laugh.

    Lets face it, the guy is dumber than a box of rocks, and thinks he is some kind of a genius.

    It isn't like he is going away or anything. He will stay here trying to avoid acknowledging his various stupid claims even while making up new and equally stupid theories.

    The whole exercise is pointless, but a nice little diversion while watching the housing market.

  5. I think Japan is really in a bit different position, we had some years of nice growth, while they had stagnation or very limited growth for more than a decade. More, their monetary tools were almost exhausted even before the crisis began...
    Take care