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Studying Japan's Dark Decade to See How U.S. Might Fare
Japan weathered a "lost decade" of economic growth better than expected, economists say.
(By Katsumi Kasahara -- Associated Press)
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The long, dull economic pain -- as opposed to the sharp pinch in the United States -- happened in part because of what economists have called Japan's fatal flaw: a delayed reaction.
While the Japanese financial crisis had both parallels and sharp differences to the one facing the United States -- both countries faced bursting real estate bubbles and needed to address billions of dollars worth of bad loans on the books of banks -- officials there took the opposite approach to solving it.
In direct contrast to doomsaying U.S. officials who called for a fast $700 billion bailout to avoid financial collapse, the Japanese government steadily reassured the public that its banking system was solid, prolonging any real fixes for at least seven years. That had the effect of making the Japanese economy gradually worse. But it also blunted the sense of intense, immediate panic that has washed over Wall Street in the past three weeks.
Economists still fault the regulators in Japan for their slow reaction; in some instances, government officials colluded with financial institutions to hide the extent of the problems. Yet in light of how quickly the U.S. financial crisis has exploded, there is new debate about whether there may have been some method to Japanese madness.
"The question now is whether you really can postpone the worst by ignoring it for 10 years," said Alex Patelis, Head of International Economics for Merrill Lynch.
Staff researcher Julie Tate contributed to this report.
