US economy won't endure a 'lost decade' the way Japan did.
Does America face a "lost decade," such as Japan suffered in the 1990s?
After all, Japan in that decade saw a massive real estate price bubble burst, leading to huge write-downs by commercial banks, deep recession, and – since the late 1990s – sustained stagnation and deflation. The United States has experienced something similar – a financial crash, the Great Recession, a bad slump in housing prices, and minute inflation.
Usually, after a serious slump, the American economy revives at perhaps a 7 percent growth rate, says Alan Levenson, chief economist for T. Rowe Price, a mutual-fund management giant based in Baltimore. This time, the US economy is only "gradually gaining momentum."
He expects US gross domestic product, the country's output of goods and services, to grow at a 2.5 to 2.75 percent annual rate for the next few quarters, after adjusting for inflation. So unemployment will only decline from 9.6 percent to 8.5 percent by the end of 2012, Mr. Levenson figures. The jobless rate may not get back to an acceptable, or "natural rate," of 5 to 6 percent until the end of the decade, guesses Mr. Gault.
In the wake of Japan's experience, US policymakers have taken much more aggressive measures to boost the economy than Japan's did. For example, the Japanese banking crisis occurred in 1997; the Bank of Japan responded in 2002. By contrast, the 2008 banking crisis in the US elicited a 2009 response from the Federal Reserve, when it saw inflation so low it feared Japanese-style deflation. Deflation is "hard to get out of," notes Levenson.