The Coming ‘Lost Decade’ in America?
Historically, when the government meddles in the markets, things don’t turn out well…
The most recent example is Japan in the 1990s, and that ended with the “Lost Decade.” Here’s what happened:
Japan had a huge real estate bubble.
Banks overlent on a massive scale, making risky loans that were almost doomed from the start.
The stock market and the real estate market started to fall.
To save the economy, the Japanese Central Bank took extraordinary measures… lowering interest rates to unprecedented levels. But it wasn’t enough.
Once the crisis was in full swing, the troubled banks hoarded cash instead of lending money. The economy gummed up. Asset prices went down. And people froze… They wouldn’t invest in stocks or real estate.
Sound familiar?
The next steps sound familiar, too…
Instead of allowing bad banks to fail… instead of allowing the system to “clear”… the government pumped in cash to prop them up. The result was hundreds of banks and businesses existing in a sort of purgatory… neither private nor public… neither alive nor dead… They were known as “zombies.”
The result? Japan’s Lost Decade. Real estate prices plummeted. Japan’s main stock index, the Nikkei, dropped from a peak near 40,000 to a low of about 7,500 in 2003.
Japan’s government, of course, was trying to help.
It’s easy to say, “Let ’em fail.” But when you’re in the thick of things… when it comes right down to it… it’s hard to do. When the public is pleading for government to “do something,” then government feels compelled to, well, do something.
Daily Wealth
9/26/8
Magnolia Tribune
