Obama Bonds: More Evidence US Economy Looks Like Japan in 1990s

As President-elect Obama prepares a massive public works program that will be funded via Obama Bonds, the evidence is growing that the US economy looks quite a bit like Japan's in the 1990s after its real estate bubble popped. Even the Japanese are making the comparison and providing some advice on what the US can do.

As President-elect Obama prepares a massive public works program that will be funded via Obama Bonds, the evidence is growing that the US economy looks quite a bit like Japan's in the 1990s after its real estate bubble popped.  Even the Japanese are making the comparison and providing some advice on what the US can do.

"The U.S. is starting to look like Japan in the 1990s, when the Bank of Japan struggled to revive growth as the combination of deflation and recessions stranded the nation in the so-called Lost Decade. Yields on Treasuries are falling as the government sells a record amount of debt to prop up the American economy. Two-year note yields have fallen to 1 percent, compared with 0.57 percent for Japanese government bonds of similar maturity. The gap last week touched the narrowest since 1992.

“History repeats itself,” said Hiroyuki Bando, chief manager for fixed income, equities and currencies in Tokyo at Mitsubishi UFJ Trust & Banking Corp., which manages the equivalent of $200 billion and invests on behalf of Japan’s biggest bank. “Based on our experience in Japan, the same thing will happen in the U.S. The U.S. has more room to borrow.”

BestCashCow published an article discussing how the eventual drop in the Federal Funds Rate to 0% parallels the Japanese Central Bank dropping rates to 0%.  Today, Blooomberg published an article that discussed how the Treasury Debt market, with declining yields even in the face of increased borrowing is similar to Japan.The comparison should give pause to investors who think the US equity markets will come roaring back anytime soon.  As the BestCashCow article Fed Funds Rate to .25%? Economy Looking Like Japan in 1990 states:

"The result was what's called the Lost Decade, a decade of virtually no growth. In many ways, Japan still hasn't recoved. Its markets are still down from their highs in the early 1990s (the Nikkei peaked at 38,916 in 1990 and is now at 13,376). Think about it, the main Japanese stock market is down over 60% nearly 20 years later. Growth, even when it returned in Japan was moderate, and real estate remains below its pre-bubble highs,"

Sam Cass
Sam Cass: Sam Cass, MBA, JD, University of Texas at Austin. Always a fan of Leonardo Da Vinci.

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Comments

  • ktexas

    December 09, 2008

    It highlights how the stock market should be considered a long-term investment in which long term should be defined as 20 to 40 years. I wonder how long it'll take my S&P index fund to get back to the high it reached in 2000.

  • Sam Cass

    December 09, 2008

    Give it another twenty years. Have to wait for the Generation Y (echo boomers) to start investing. I think a lot of this is generational. Baby boomers flooded the market with investment cash by depositing into 401Ks, etc. Now that they are retiring, flood of money is drying up. I think that's the real root of the problem. Same thing happened in Japan.

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