Three Reasons Why We Are Not Going To Become Japan

This short article touches on the notion that the economy of the United States is showing some resemblances to Japan's economy in that the same kind of double-dip recession that Japan went through about 20 years ago. A double-dip recession is a recession followed by a short-term recovery, followed by another recession. In Japan's case, they suffered two bubbles in the real estate and equity markets that put prices at ridiculous levels and completely out of proportion. The Imperial Palace in Tokyo, which is near 5 miles around, was valued the same as the State of California. That one instance, although not your run-of-the-mill home in Japan, shows the magnitude of the spike in prices. The United States had a bubble in prices in 2007, but nowhere near that proportion, and really only effected the commercial real estate market. Japan suffered a heavy deflationary period also because they have an essentially mono-cultural society. A younger, more culturally diverse work force that the United States boasts creates industrial growth, and also huge foreign investments. But, probably the most important reason the US economy won't be plagued with huge deflation like Japan's was is the US monetary policy. Japan's economy really dropped the ball and didn't realize how serious their issues were, and were too slow to cut rates before it was too late. The Fed, starting in 2008, has aggressively been working on cutting rates and getting on smaller, struggling banks to raise some capital before they step in and take it over. This has kept everything relatively "in check" and is going through the necessary steps to repair the US economy.

I feel that the US economy will eventually recover and that the Fed is taking the necessary steps to make sure that we don't go through a huge period of outrageous deflation like Japan did. Things may not happen for some time, but small steps in the right direction are much more favorable than several steps back like Japan had to face.