Did America repeat the same economic blunder committed by Japan?

Many people considered that the issue of US economic crisis can be addressed with the implementation of the $787 billion Stimulus bill. They anticipated that the bill can help the US to get back on the right financial track. But the Stimulus bill may not be useful in the process of economic recovery as there are vital reasons behind it. The financial collapse in the US is no different from the 90’s economic depression in Japan. The land of the rising sun addressed the colossal financial collapse by reducing the interest as well as checking Keynesian expenses, but it miserably failed. The US repeated the similar mistake by reducing the interest rate that has a terrible impact on the stocks as well as on the real estate prices and it also resulted in inflation. Japan underwent similar crisis but on a much bigger scale.

Japan implemented various financial management strategies to deal with the financial collapse, for instance reduction in the interest rates, nationalizations of banks as well as introducing stimulus bills. It resulted in artificial deflation that led to a drop in prices. Consumers stopped purchasing as they expected further drop in prices and it adversely affected the economy of Japan. If we follow the similar financial strategies of Japan, then it may lead to the same pit hole.

Japan introduced minimum six Stimulus packages approximately 65 trillion yen between 1992 and 1995. The average annual stimulus amounted to approximately 3% of Japan’s GDP. In 1998, it mounted up to 8.5% and it gave no significant result. Remember, 6% of the Gross Domestic Product is the stimulus packages in our country; so there may be no noteworthy result in the US as well.

The ailing banks in Japan immediately received financial aid. However, the US is heading in the same direction as it has approved grants to struggling financial institutions. Rather it further complicated the issue as the aid is granted to maintain the present situation. However, the current situation is taking a severe shape and it needs to be changed; so the reason behind granting the aid is futile.

In pre-recession period, the construction and real estate industry in the US boomed and it required layoffs. Therefore, this is the primary reason behind the sufferance during the economic meltdown in the US. The administration under Obama approved further grant for this industry, which led to aggravate the problem. The fund helped the construction industry to hire new employees and to stop layoffs. Now, the industry is bloated and required payoff. The US economy may suffer for an indefinite period of time, till these industries recover from the hard blow of recession. People who suffered job loss in the construction sector are relocated to other industries. This it may neutralize the situation and help to avoid similar recession in future. If the layoffs are stopped then it might delay the recovery of the economy.

Patricia Garner is an Associate Editor with Oak View Law Group. She has been writing on financial topics over the years with special focus on American and European economy. Patricia also takes interest in debt related issues and contributes articles on credit card consolidation to personal finance blogs.