In the past, when I told my friend that the US’s real estate bubble will someday burst just like Japan did, my friend always told me that the US was different from Japan, and that there would only be corrections, but not decades long recessions that Japan had. In fact, that has been the views of many many Americans.
So now that US is going through a real estate bubble bursting simultaneously with an equity market bursting, we shall see the similarities and differences between the US and Japan.
Similarities:
- Both countries take their interest rate down to almost zero.
- Both countries try to save their financial institutions from going bankrupt, by either nationalizing the institutions or inject vast sums of money into them.
- Both countries are run by elected politicians who must please their voters.
Differences:
- US companies have substantially reduced employment while Japan maintained stable employment.
- US is highly indebted while Japan had lots of savings when bubble burst.
- US is a domestic consumption economy while Japan had an export oriented economy.
Japan had lost 20 years of growth since its bubble burst and still not recovered. Given the similarities and differences of their situation and policies, how will United States come out of its bubble?
