This Isn't Japan

Some doomsayers are drawing parallels between the U.S. credit crunch and the Japanese financial crisis of the 1990s. Julian Jessop, chief international economist of Capital Economics, an economic research consultancy based in Britain, is in the opposite camp.

In a recent report, he argued that the United States will avoid a financial collapse on the scale of Japan's. U.S. executives and policymakers have moved early and effectively to steer the country away from a prolonged, Japanese-style meltdown, he said. He pointed to several differences between the two crises. Among them:

Stock prices: Japanese shares lost half their value from 1990 to 1992, and their descent continued after that. U.S. stocks are off about 15 percent from their peak and are beginning to look attractively priced.

Central bank action: The Bank of Japan continued to tighten monetary policy during the crisis. It didn't cut rates until two years after the asset bubble had peaked. The Federal Reserve, by contrast, has quickly lowered interest rates.

Government response: Factional infighting prevented the Japanese government from launching a bank bailout until 1999, when the worst was already over.

Fiscal stimulus: Japan's early attempts were muddled. The stimulus was focused on boosting wasteful public works programs and keeping doomed small companies from going out of business. The government also increased the consumption tax in 1997, a move that coincided with the 1997-1998 Asian financial crisis and helped tip the economy back into recession. By contrast, the Bush administration has implemented a package of tax rebates that will begin to reach consumers in May.

Potential losses: Losses, as a percentage of gross domestic product, are smaller in the U.S. subprime crisis than they were during the Japanese financial crisis. They are also being disclosed much faster than they were in Japan.

Currency: The yen soared until 1995, while the dollar has weakened for years, increasing U.S. competitiveness and setting the stage for an economic recovery.

-- Steven E. Levingston