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What Will the US Do in a Recession? Look to Japan for Answers


Although the economic circumstances in the US and Japan differ, we’re following in Japan’s tracks – and Japan just entered a technical recession.

As Richard Koo predicted, during the Great Recession America repeated Japan’s mistakes during its “lost decade”. That’s the bad news. The good news is that America climbed into a slow recovery after the worst downturn since the 1930s. The worse news is that another recession lies ahead. Potentially a bad one, with both the world economy and many domestic sectors weak. The government will deploy powerful tools to fight this downturn.

How well will they work?

Look to Japan for answers

Japan crashed in 1989 and never got up again — despite repeated massive rounds of stimulus, and during a period of rapid world real economic growth: 1990-2003 at 3.3%, 2004-07 at 5.3% (probably the fastest since the invention of agriculture). Deflation and a shrinking population cushioned the decline, but by 2005 they were getting desperate.

Between 2006 and 2011 Japan had 6 prime ministers in 5 years; none of the last 4 able to remain in office a full year.

Shinzō Abe became prime minister on 26 December 2012. He quickly announced the bold program known as...