What the United States can learn from Japan’s ‘lost decade’


By studying the steps taken by Tokyo to resolve the financial crisis that has plagued Japan for a decade, Washington could avoid the mistakes it made and develop an even faster recovery plan.

Since the start of the US financial crisis in August 2007, politicians have reassured us that the United States is a nation cunning enough not to repeat the mistakes made by Tokyo in its “lost decade” over the years. 1990. The insalubrity of the Japanese financial system caused an economic crisis which extended over several years. But as weakened US banks collect money instead of lend it, this scenario tends to repeat itself in the United States. At the annual gathering of the American Economic Association in San Francisco held Jan. 3-5, some prominent economists argued that the United States runs the risk of falling into the same trap.

Washington, where the next Obama administration has made economic recovery its No. 1 priority, hears San Francisco’s message well. Economists say Obama needs to devise a strategy to revive the financial system as quickly as possible to allow the economy to return to normal growth. It will above all be a question of drawing a maximum of capital from the healthiest banks, and of closing the most affected economically. By doing so, the state will incentivize private sector companies to invest in surviving banks so that they have enough money to be able to lend again.

According to specialists, the main lesson learned from Japan’s experience is that good monetary and fiscal policies are necessary but not sufficient to trigger a recovery. The state also needs to spend some of its political capital with a particular focus on the management, the shareholders, as well as the creditors of the prominent but unhealthy banks that need to be shut down in order to revive the financial system. This campaign should begin with an inflexible audit of the books of accounts kept by the main banking institutions. “We have not closed banks without any remorse. And the problem is there, admits Kenneth Rogoff of Harvard University, who submitted a report to the San Francisco rally. “We criticized Japan for being too lenient with its financial institutions, but we ourselves had great difficulty in doing so. »


At least the monetary and fiscal measures aimed at recovery are currently in place. In December, the Federal Reserve lowered its forecast rate of federal funds disbursement from 0 to 0.25%, a rate that had never been so low before. It has also begun a campaign aimed at reducing mortgage rates by buying more than $600 billion in mortgage-backed securities, while minimizing the debts of individuals to their real estate agencies. The Federal Reserve is even considering adopting a measure previously rejected by Japan, ie to commit to aiming for a fixed positive inflation rate in order to prevent catastrophic deflation from occurring. According to a report published on January 6,

On tax measures, recently elected President Barack Obama is negotiating with Congress to cut taxes by about $775 billion and to talk about increased government spending over two years. The first-choice initiatives offered by this set of proposals could include what is known as subsidy downgrading. This measure allows successful companies to recoup the cost of their investments more quickly. Another proposal studied is the establishment of a one-year tax credit for companies that hire new employees. The Obama administration expects a $300 billion tax cut package to begin a lasting recovery in the economy.

When it comes to restoring the financial system, it is very strange how much the measures being considered by the United States seem to follow in the footsteps of Japan, but at a faster pace. Although the Japanese crisis, triggered by a fall in real estate prices, began in 1990, Japan’s financial situation only became critical in 1997. In 1998, the State injected capital into the banks, but not enough. Efforts to remedy this intensified in 1999, when the government poured more capital into banks and began buying loans from them, while the Bank of Japan cut interest rates overnight, -it then approaching the zero bar. In 2001, the state began trying to determine funding from borrowers to banks. Throughout this crisis,


It was only in 2002, when Japan began to seriously restructure its banks, that it finally resolved to put its measures together. The turning point was the appointment of economist Heizo Tekanak, in the midst of an election campaign, as head of reformist state financial policy. His scheme, known as the Takenaka Project, tightened audits within banks, forcing banks to suspend bad loans and increase capital. The weaker banks then merged to form stronger ones.

The similarities between the United States and Japan were pointed out at the San Francisco conference in a well-known article written by Anil Kashyap of the University of Chicago’s Booth School of Management, and Takeo Hoshi of the University of California at San Diego and the Center for Economic Research in Tokyo. Both have long been specialists in the Japanese banking system.

According to Kashyap, the United States began to bear negative similarities with Japan this fall, after the state rescued the rapid conflagrations of banks Fannie Mae (FNM), Freddie Mac (FRE), AIG (AIG ), Citigroup (C) and other institutions. “The guys in the markets always want to save everybody, but you can’t socialize all the losses,” he said in a Jan. 6 interview. In the United States, it has become reasonable to consider that the state made a huge mistake by letting Lehman Brothers bank go bankrupt, but Kashyap clarified: “I don’t think it’s so obvious to think that if Lehman had been saved, no other bank would have gone under.


Experts predict tough times for the United States. “If we have to learn a lesson from the experience of Japan, it is that the recovery of the economy will take time”, insists Eisuke Sakakibara, former senior official of the Japanese Ministry of Finance and now professor at the University from Waseda. Seiji Shiraishi, Chief Economist at HSBC Securities (HSBC) in Tokyo, adds: The (US) authorities reacted quickly, but I’m not sure how they view the future. In my view, the years to come will be rigorous. »

The lesson learned from Japan’s experience (and that of the United States with the savings and borrowing crash of the late 1980s and early 1990s) is that the best hope of ending the crisis lies in the restoration of the normal functioning of finance. But this objective is ambitious, given the huge wave of failures of the system which will affect the next two years and relating to mortgage loans, those granted by agencies specializing in commercial real estate, as well as credit cards.

Judging from Japan’s experience, even the strongest banks will need a larger injection of capital to offset the losses they will incur. Uncle Sam will have to take over the bonds of the weakest banks, selling at a loss their portfolios of loans to taxpayers. The state could also be forced to restructure some non-financial companies, such as automobile manufacturers or retailers.

All these projects will be very expensive and, politically speaking, will be fraught with pitfalls. Japan’s experience indicates, among other things, that a strong safety net has been put in place to protect people losing their jobs as a result of the closure of dying businesses. As large as it may seem, it is likely that the stimulus plan envisaged by Obama is only a down payment. Indeed, the United States has seen its financial system change faster than Japan, in part because its economic crisis is proving to be both faster and more severe. Whether the US economy will be able to recover as quickly and as well as the Japanese economy remains to be seen.

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