16 June 2009
Will U.S. housing go the way of Japan?
Posted by John under: News .
I’m always intrigued by charts comparing a current trend to a previous era, or even to the experience of another country. So I was struck by a few charts I stumbled upon recently, all via the Pragmatic Capitalist blog, comparing the arc of the U.S. housing market to the experience of Japan during the 1990s, aka “the Lost Decade.” (I'm not suggesting that I just "discovered" the current U.S. situation is being compared to Japan, but that it might be worth a revisit of the debate.)
I’m not necessarily a believer in the axiom that “history repeats itself,” because my view is that it’s a limited menu--and future generations can learn from past experiences to make sure they don’t repeat the same mistakes (witness Fed Chairman Ben Bernanke’s preemptive efforts to avoid a repeat of the same restrictive policies that pushed the tottering U.S. economy into the Great Depression back in the 1930s.
There are similarities to the U.S.: Both countries enjoyed (suffered?) housing bubbles that were fed by cheap money and lots of leverage. And the central bankers in both the U.S. and Japan pushed short-term interest rates down to ridiculously low levels to both enable existing borrowers to refinance, and to stimulate new business activity.
Still, in Japan it took a decade for consumers and business alike to work down their debts to a level the economy could start growing again, which gave rise to the phrase “the Lost Decade.” Here’s a look at the current financial situation of U.S. households, the Pragmatic Capitalist: