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WHAT THE U.S. HAS TO LOOK FORWARD TO?

From the Economist:

TO LOSE one decade may be regarded as a misfortune; to lose two looks like carelessness. Japan’s economy stagnated in the 1990s after its stock market and property bubbles burst, but its more recent economic performance looks even more troubling. Industrial production plunged by 38% in the year to February, to its lowest level since 1983. Real GDP fell at an annualised rate of 12% in the fourth quarter of 2008, and may have declined even faster in the first three months of this year. The OECD forecasts that Japan’s GDP will shrink by 6.6% in 2009 as a whole, wiping out all the gains from the previous five years of recovery.

If that turns out to be true, Japan’s economy will have grown at an average of 0.6% a year since it first stumbled in 1991 (see top chart). Thanks to deflation as well, the value of GDP in nominal terms in the first quarter of this year probably fell back to where it was in 1993. For 16 years the economy has, in effect, gone nowhere.

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As I’ve mentioned many times before, our leaders have chosen to use the Japan playbook.   Let’s hope that they either confront the toxic asset problems soon and force the banks to clean-up their balance sheets or we might be looking at something similar….

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