The Globe and Mail's Marcus Gee looks at how Japan went from being a booming economy to a 10-year basket case -- and whether there's any lessons for North America.
Japan's painful hangover from its own version of the global financial crisis is a grim lesson for those who hope for a quick recovery from the present one. Japan is the only major industrialized country since the Great Crash of 1929 to go through a crisis of a similar scale. Like the United States and other world economies today, it suffered a market meltdown, a collapse in consumer confidence and a crisis in its banking system.
It has never fully recovered. After being knocked flat on its back by the bursting of a stock-market and real-estate bubble in the early 1990s, it stayed there for the rest of what became known as its “lost decade.” It bounced back slightly after the turn of the century, only to head into trouble again as the global economy weakened. In all, the aftereffects of its crisis have lasted nearly two decades.
Is it possible that North America and other parts of the world could suffer as long? Just a few months ago, the idea seemed far-fetched. But as the crisis widens and deepens, it no longer seems so implausible. Some argue that Japan was actually in better shape after its bubble burst than the United States and other hard-hit countries are today. Yet Japan suffered four recessions after the bubble burst in 1990 and has just entered a fifth.
If Japan is any guide, it will take much more time to rebound from the current global crisis than many of us expect. Much more money, too. Of all the lessons from Japan's unhappy experience, the most profound may be: Expect the worst. This is going to be a long, rocky ride.
“I think people are being naive about the severity of the adjustment and, more importantly, the length of the adjustment,” said Jesper Koll, an analyst for Tantallon Research Japan who lived through the lost decade. “I'm not a scaremonger, but it's time to be realistic.”
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