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Will U.S. Experience Japan's Lost Decade?

Friday, August 6, 2010 - 5:15 AM
If the U.S. goes down the path that Japan went down in the 90's, we will likely see near-0% interest rates for a long time. Even though there are some parallels between our condition today and Japan's condition in the 90's, there are several differences. This blog post at Monevator reviews the possibility the U.S. will follow Japan and concludes there are more differences then similarities with Japan.
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Ken TuminKen Tumin5,442 posts since
Nov 29, 2009
Rep Points: 123,743
1. Friday, August 6, 2010 - 11:44 AM
Great link, Ken.  The article provided great food for thought, and so did ALL of the comment posters.  Here's a portion of one poster's comments that I found interesting (all are worthwhile reading, though):
However there are some important differences that are concerning. Firstly, in the US/UK it is the consumer sector that needs to clean up its balance sheet; in Japan it was the corporate sector, which accounts for a much smaller share of the economy.

The deleveraging of the consumer sector has some way to go here and therefore significantly risks sucking demand out of the economy and creating deflation. This has been called a balance sheet recession, and in such an environment, QE is useless, as it proved to be in Japan.

Another key difference is the state of the governments’ balance sheet. In Japan, the drop in corporate investment was offset by massive government spending. In the US and UK, the government has limited/no ability to step in and offset any drop in demand from the consumer sector.

So while the situations in Japan and the US/UK are not exactly the same, some of their differences actually increase the risk of creating a similarly protracted downturn.

Jim

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MikeMike327 posts since
Feb 22, 2010
Rep Points: 875
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