Why the Japanese Economy has been Stagnant for 15 years: A Lesson for the US

This presentation is long and somewhat technical but there are important ideas contained within that apply to the US economy.  Japan had a large reduction in real estate values after the real estate bubble burst , this led to 10 to 15 years of economic stagnation, interests rates were driven down to zero, private companies quit investing and just paid down debt, and the government responded by an off-and-on fiscal policy that caused the economy to go from slight growth and decline for more than a decade.

Main lesson:  Keep your pedal on the government spending or things will get worse when private investment has stopped. This lesson strongly applies to the US and suggests that we may be in for a very long period of slow growth and high unemployment if political leaders insist on paying down public debt instead of continuing to provide stimulus (so far too little).

About Stephen McGaughey
Economist and international consultant in economic development programs

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