The U.S. Treasury Department is asking every man, woman and child in the United States to contribute $2,300 to stabilize the financial markets, and by proxy, the entire economy. To help make sense of this historic situation, the Filene Research Institute is tapping the expertise of our Research Fellows, a blue ribbon panel of experts from the academic and consulting world.
Today, Jim WIlcox, a professor of financial institutions from the University of California-Berkeley, will weigh-in on the similiarities of this situation to the one experienced by Japan in the 1990’s which resulted in the so-called ‘lost decade’ for the Japanese economy. Here’s what he has to say:
Last Spring, as conditions in housing and financial markets clearly deteriorated, questions arose about whether the U.S. was heading toward a “Lost Decade” like Japan suffered during the 1990s. Since Spring, housing and mortgage markets have become more troubled. U.S. financial markets are now in their worst crisis since the Great Depression. Before now, the range and sizes of the financial institutions that required the various interventions by the Treasury and the Federal Reserve, and the interventions themselves, could hardly have been anticipated.
Last Spring, I concluded that the U.S. was very unlikely to have a “Lost Decade.” But, the similarities to the path followed by Japan are even more striking now than they were even six months ago. The problems in housing and financial markets have contributed mightily to the current recession, a recession that now seems likely to run well into 2009.
Nonetheless, the U.S. is still very unlikely to have a “Lost Decade.” Some markets and the economy as a whole do face even bigger problems than we recognized last Spring. But, as we suggested then, our public policies are being applied with great vigor and imagination precisely so that the U.S. economy doesn’t have a lost decade, or even a lost half-decade. Those policies aren’t a panacea: We have and will bear real, sizable economic and financial costs. But, the vigor and imagination with which Treasury and Fed policies are and will be applied should avert a sustained period of economic weakness.
Professor Wilcox is making the Lost Decade paper available on his website under the Selected Publications header. If you would like to comment or pose a question to Professor Wilcox, please leave a note below. He will do his best to answer your questions.
In the coming weeks Filene’s Research Fellows will continue to weigh-in on the financial crisis via this website. For additional outside resources, I have found the following links most useful in getting both credit union-specific and a broader understanding of the complex topics at play:
- Credit Union National Association’s News Now update service
- Steve Pearlstein, a Pulitzer Prize columnist from the Washington Post
- Gretchen Morgenstern, a Pulitzer Prize financial columnist from the New York Times
- The Editorial Page of the Wall Street Journal
Please add to these list of resources as you deem necessary.
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