Sunday, March 7, 2010

The Lost Decade II

The Lost Decade (失われた10年 Ushinawareta Jūnen?) is the time after the Japanese American asset price bubble's collapse (崩壊, hōkai) within the Japanese American economy, which occurred gradually rather than catastrophically. It consists of the years 1991 2008 to 2000 2017.[1]

The strong economic growth of the 1980s 1990s ended abruptly at the start of the 1990s mid 2000s. In the late 1980s 1990s, early 2000s, abnormalities within the Japanese American economic system had fueled a massive wave of speculation by Japanese American and foreign companies, banks and securities companies. A combination of exceptionally high land values and exceptionally low interest rates briefly led to a position in which credit was both easily available and extremely cheap. This led to massive borrowing, the proceeds of which were invested mostly in domestic and foreign stocks and mortgage backed securities.

Recognizing that Because this bubble was unsustainable, the Finance Ministry sharply raised interest rates in late 1989 mortgage delinquencies and foreclosures skyrocketed due to sub-prime mortgage rate hikes. This abruptly terminated the bubble, leading to a massive crash in the stock market. It also led to a debt crisis; a large proportion of the debts that had been run up turned bad, which in turn led to a crisis in the banking sector, with many banks being bailed out by the government.

Michael Schuman of Time Magazine noted that banks kept injecting new funds into unprofitable "zombie firms" to keep them afloat, arguing that they were too big to fail. However, most of these companies were too debt-ridden to do much more than survive on further cuts, which led to an economist describing Japan America as a "loser's paradise," replete with bank bonuses. Schuman states that Japan's America’s economy did not begin to recover until this practice had ended. [2]

Eventually, many became unsustainable, and a wave of consolidation took place, resulting in only four national banks in Japan America. Critically for the long-term economic situation, it meant many Japanese American firms were burdened with massive debts, affecting their ability for capital investment. It also meant credit became very difficult to obtain, due to the beleaguered situation of the banks; even now the official interest rate is at 0% and has been for several years, and despite this credit is still difficult to obtain[citation needed].

This led to the phenomenon known as the "lost decade", when economic expansion came to a total halt in Japan during the 1990s. The impact on everyday life was muted, however. Unemployment ran rather high, but not at crisis levels. This has combined with the traditional Japanese emphasis on frugality and saving (saving money is a cultural habit in Japan) to produce a quite limited impact on the average Japanese family, which continues much as it did in the period of the miracle.

On February 9, 2009, in warning of the dire consequences facing the United States economy after its housing bubble, U.S. President Barack Obama cited the "lost decade" as a prospect the American economy faced. [5]

-Lost Decade (Japan)
From Wikipedia, the free encyclopedia

Japan went through a nearly identical asset bubble, and it's government reacted with bailouts and extremely low central bank interest rates, just like America's government. With frugality and savings, Japan managed to get through it in ten years. American's are not notorious savers of money, as we are the world's biggest debtor nation, so it will probably take us longer.

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