Deja Vu of the Lost Decade

The financial crisis is becoming more and more similar to that of Japan's "lost decade". The Economist says

According to the IMF, non-performing loans in Sweden reached 13% of GDP at the peak of the crisis. In Japan they hit 35% of GDP. A recent estimate by Goldman Sachs suggests that American banks held some $5.7 trillion-worth of loans in “troubled” categories, such as subprime mortgages and commercial property. That is equivalent to almost 40% of GDP.

Japan’s outcome—a decade in which growth averaged 1% a year and gross government debt rose by 80 percentage points of GDP—was not one to be proud of. But given the magnitude of today’s mess, it may soon seem not that bad after all.

Governor Shirakawa of the Bank of Japan said,

In light of our experiences during the financial crisis in Japan, the development of the current global financial crisis gives me a surprising sense of deja vu. Until recently, Japan’s financial crisis has been considered as an isolated event unique to Japan. It appears that people around the globe are gradually coming to understand the implications of the massive credit bubble and its burst through the bitter experience during the current crisis.

Since I experienced the crisis as a journalist in the 90s, the response of FRB and the U.S. Treasury is much quicker than that of BoJ and MoF, but the results are not so impressive. They won't repeat our mistakes, but they might make new mistakes because, in the word of Tolstoy, happy economies are all alike; every unhappy economy is unhappy in its own way.