The Lost Decade

Could it be, I asked myself last night while driving home from The Abstracted Mother's house, that we're just repeating history?

My colleague at work off whom I incorrigibly bounce all my thoughts before publishing them mentioned the other day that China is extremely good at learning from the mistakes of others.
The Chinese see our manufacturing sector suffering when the dollar loses value, so they fix their currency at such a low rate that no other country can compete. They see unionization driving down profits so the aggressively control union activities.

But the United States may not be learning from our foreign neighbors. Last night on the radio a caller-in claimed that the reason decisions were hard to make was because the economic situation America finds itself in is unique; no roadmap exists for this type of situation.

Not so!

In the late 1980's, Japan's housing market bubbled like crazy. Property values in some parts of Japan tripled, and the government (surprise!) encouraged the growth in property values (some as much as $139,000 per square foot) by pushing less stringent requirements to qualify for a low down payment mortgage. Sound familiar?
Why was the Japanese government encouraging the housing bubble? Fear of decreasing value of their currency, and fears of decreasing exports compared to imports from China. Sound familiar?
The housing bubble inevitably burst, and the mortgage crisis threatened to sink several large banks, trillions in property value were lost. The mortgage crisis was exacerbated when the government adopted a protective policy for banks, and invested billions trying to bail them out, creating what the Japanese called 'zombie businesses'. Sound familiar?

Japan's recovery from the mortgage crunch was slowed by low interest rates (0% at one point), deflation, and the continued act of giving mortgages to people who were considered high-risk. Prices didn't bottom out until 2003, and they now call the 90's "Japan's Lost Decade."

Please, America, learn!