I’ve been telling clients for a couple of months now that there are only two examples of financial crises in the modern western world that compared to what we are going through today. One is our own Great Depression, a repeat of which I believe we are going to avoid although it is far from guaranteed. The other is Japan starting in the late 1980s. I’ve come to call this the “Japan Scenario”.
An article in the NY Times today, Japan Offers a Possible Roadmap for U.S. Economy, shows that this idea has become mainstream.
The article gives a good overview of what the Japanese did to combat their financial crisis and how we are doing essentially the same things now. The article also sides with the mainstream view that while the Japanese economy still has not recovered in any significant way ours will because we are taking the same actions faster.
I hope this view is correct, but the economists who first started discussing the Japan Scenario a few months ago believe that faster action on our part will not significantly change the outcome. We will avoid a depression, but we will see a long period of economic stagnation. Hopefully it will be shorter than the 20 years and counting that the Japanese economy has been underperforming.
Sidebar: not only has the Japanese stock market not recovered from its crash in 1990, neither has Japanese real estate. Land prices in this island nation are lower today than they were in the late 1980s.