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The economies of Japan and US

Question:

What can we learn from the Japanese experience? Is the US headed for a 'lost decade?

Answer:

There was a similarity in the way the economies of Japan and US went into the crisis: it started from the real estate bubble burst which was caused by sub-prime lending. It was the lack of aggregate demand which caused the major trouble, along with contractionary conditions. The investment rate was low and liquidity trap existed. However, the case of US is not the same. US responded to the downturn almost immediately and the recover, though slow is already on way. The most important aspect is that unlike Japan, the US financial and banking structure is more transparent and regulated, at least now, than the erstwhile Japanese counterpart. The US has also made many efforts to help the panicked credit markets than Japan. So, it does not seem that US will experience a "lost decade".

 

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