Daniel Gross: A Recession in Dog Years
[ A native of East Lansing, Michigan, Mr. Gross graduated from Cornell University in 1989, with degrees in government and history, and holds an A.M. in American history from Harvard University (1991). He worked as a reporter at The New Republic and Bloomberg News, and has contributed hundreds of features, news articles, book reviews and opinion pieces to over 60 magazines and newspapers. Areas of expertise include: economic and tax policy, the links between business and politics, the rise of the investor class, the culture of Wall Street, and business history.]
The U.S. is experiencing what Japan did in the 1990s, but seven times faster.
A look at how an American made crisis has shaken economies the world over.
Combine Japanese cultural tendencies toward formality, politesse, and indirection with the usual central banker's love of opacity and econo-jargon, and you'd expect that a meeting with the Deputy Governor of the Bank of Japan would be a one-way trip into a cloud of vagueness. But in a meeting Monday, Kiyohiko Nishimura, Yale-trained economist, former Tokyo University professor and deputy governor of the Bank of Japan, gave one of the most lucid and useful explications of the credit crisis and its aftermath that I've heard– and I've heard a lot of them. And even more surprisingly, it was pretty optimistic.
A Japanese central banker is well situated to comment on the current global crisis, given Japan’s own sad history of dealing with the overhang of a credit/real estate bubble—or, more accurately, of not dealing with it. The government and private-sector's uncertain policies condemned Japan to a traumatic lost decade of slow growth.
Nishimura shared a talk he's been giving—including at a Federal Reserve Bank of Chicago conference in May—about the comparative post-bust experience of Japan in the 1990s and the U.S. today. It's titled: "The Past Does Not Repeat Itself, But it Rhymes." The rhyming can clearly be seen in a chart showing what he dubbed a "remarkable resemblance in developments between the U.S. crisis and Japan's 'lost decade.'"
Nishimura dates the onset of the Japan crisis to the fourth quarter of 1990, when commercial land prices began to fall, and tracks the policy responses (rate cuts in 1991, stimulus in August 1992 and following years, expanding bank insurance in 1995, bank failures in 1997, injections of public funds into banks in 1998, zero-interest rate policies in February 1999.) The Japanese economy began to grow again in 1999, but slipped back into recession in 2001. The final turning point for Japan came in October 2002, when Japan's authorities urged banks to deal more aggressively with problem loans. "The Japanese economy was, in general out of the woods around 2005," Nishimura concludes. (Of course, it's deep in recession now, with the rest of the global economy.)
If the first chunk of this story sounds familiar, you're right. On an adjacent chart he shows how the U.S. crisis, which he dates to the decline in mortgage-backed securities prices in February 2007, has followed a remarkably similar course. But that doesn't mean the U.S. is in for 15 lean years. The resemblance lies more in the sequence of events than in their duration, the rhyming rather than the repeating. In fact, the U.S. is acting in what might be considered dog years. In the early stages, he said, "one month in the U.S. looked approximately equal to three months in Japan in the early stage." But since September 2008, he said, it's more like "one month in the U.S. is equal to six or seven months in Japan."...
Read entire article at Newsweek
The U.S. is experiencing what Japan did in the 1990s, but seven times faster.
A look at how an American made crisis has shaken economies the world over.
Combine Japanese cultural tendencies toward formality, politesse, and indirection with the usual central banker's love of opacity and econo-jargon, and you'd expect that a meeting with the Deputy Governor of the Bank of Japan would be a one-way trip into a cloud of vagueness. But in a meeting Monday, Kiyohiko Nishimura, Yale-trained economist, former Tokyo University professor and deputy governor of the Bank of Japan, gave one of the most lucid and useful explications of the credit crisis and its aftermath that I've heard– and I've heard a lot of them. And even more surprisingly, it was pretty optimistic.
A Japanese central banker is well situated to comment on the current global crisis, given Japan’s own sad history of dealing with the overhang of a credit/real estate bubble—or, more accurately, of not dealing with it. The government and private-sector's uncertain policies condemned Japan to a traumatic lost decade of slow growth.
Nishimura shared a talk he's been giving—including at a Federal Reserve Bank of Chicago conference in May—about the comparative post-bust experience of Japan in the 1990s and the U.S. today. It's titled: "The Past Does Not Repeat Itself, But it Rhymes." The rhyming can clearly be seen in a chart showing what he dubbed a "remarkable resemblance in developments between the U.S. crisis and Japan's 'lost decade.'"
Nishimura dates the onset of the Japan crisis to the fourth quarter of 1990, when commercial land prices began to fall, and tracks the policy responses (rate cuts in 1991, stimulus in August 1992 and following years, expanding bank insurance in 1995, bank failures in 1997, injections of public funds into banks in 1998, zero-interest rate policies in February 1999.) The Japanese economy began to grow again in 1999, but slipped back into recession in 2001. The final turning point for Japan came in October 2002, when Japan's authorities urged banks to deal more aggressively with problem loans. "The Japanese economy was, in general out of the woods around 2005," Nishimura concludes. (Of course, it's deep in recession now, with the rest of the global economy.)
If the first chunk of this story sounds familiar, you're right. On an adjacent chart he shows how the U.S. crisis, which he dates to the decline in mortgage-backed securities prices in February 2007, has followed a remarkably similar course. But that doesn't mean the U.S. is in for 15 lean years. The resemblance lies more in the sequence of events than in their duration, the rhyming rather than the repeating. In fact, the U.S. is acting in what might be considered dog years. In the early stages, he said, "one month in the U.S. looked approximately equal to three months in Japan in the early stage." But since September 2008, he said, it's more like "one month in the U.S. is equal to six or seven months in Japan."...