Comparing Three Crises
Though they emerged from very different economic environments, the recent U.S. credit crisis, Japan’s “Lost Decade” in the 1990s, and the U.S. Great Depression were each prompted by a bursting asset bubble. So far the economic losses of the credit crisis have been milder than those during Japan’s Lost Decade or the Depression. Yet in some ways the economic environment in the United States at the start of the credit crisis appears worse than that in Japan at the cusp of the Lost Decade or that in the United States at the start of the Depression. Fortunately, U.S. policymakers learned from some past mistakes and responded more forcefully and promptly to the current credit crisis—though it remains to be seen whether financial stabilization will be followed by prudential or structural reform. The danger of a second Great Depression has diminished, but a reform-less recovery would be fragile, prone to reversals and marked by an extended period of weak growth, if Japan’s case serves any warning.
The following paper by RGE’s Mikka Pineda—“U.S. Credit Crisis (2007-Present) vs. Japan’s Lost Decade (1990-Present) vs. U.S. Great Depression (1929-1939)”—compares several economic indicators before, during and after the three financial crises. Summary tables and timelines are provided at the end of the paper.
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