The “lost decade.” That’s how the Japanese describe their country in the 1990s. Those just so happen to be the boom years here in the United States. Japan’s real estate and stock bubbles had burst. The interest rates had moved to near zero. Consumers stopped spending, growth slowed, and the Japanese seemed to be losing clout on the world stage.
The Japanese government tried to spur growth by reducing interest rates — from 8 percent to zero. But despite that drastic action, absolutely nothing happened — no increase in asset prices, no increase in economic activity. There is a parallel to the current situation in the United States, where the Federal Reserve has dropped interest rates, to little avail. Like Japan in the 1990s, the U.S. is suffering what a “balance sheet recession.” When asset prices collapse, the people who bought those assets with borrowed money are left with balance sheets underwater, and all they want to do is pay down debt.