Slide 1CHAPTER OUTLINEJapan in the 1970s and 1980sThe Nikkei 225GDP Growth Compared To Other CountriesDollars or Yen?The Japanese Growth PeriodWhat Happened?Simultaneous CrashesJapanese StagnationBeing Passed by China & Left BehindWhat they TriedWhat they TriedDeflationWhy Didn’t Fiscal Policy Work? Deflationary ExpectationsU.S. Policy Attempts to Avoid The Japanese StagnationSo Could It Happen?15-1©2015 McGraw-Hill Education. All Rights Reserved ©2015 McGraw-Hill Education. All Rights Reserved Chapter 15The Japanese Lost Decade: Could it Happen to the U.S.15-2©2015 McGraw-Hill Education. All Rights Reserved CHAPTER OUTLINE•The Economic Situation in Japan Prior to 1990•So What Happened in Japan to Change all This?•How Is This Similar to the Current Situation in the United States?15-3©2015 McGraw-Hill Education. All Rights Reserved Japan in the 1970s and 1980s•Rapidly Rising Stock Market•Rapidly Rising GDP15-4©2015 McGraw-Hill Education. All Rights Reserved The Nikkei 22515-5©2015 McGraw-Hill Education. All Rights Reserved GDP Growth Compared To Other CountriesMeasured in Dollars In YenJapan U.S. China Germany Japan1960s 3.20% 9.00%1970s 4.20% 4.80%1980s 4.07% 3.05% 8.88% 1.81% 4.50%1990s 0.90% 2.98% 9.54% 1.78% 1.28%2000s 0.43% 1.38% 9.38% 0.51% 0.35%15-6©2015 McGraw-Hill Education. All Rights Reserved Dollars or Yen?•Measuring Real GDP growth in Yen is a more accurate reflection of how Japanese citizens experience that growth (or lack thereof)•Measuring Real GDP in dollars ensures that currency devaluation does not get reflected as growth.15-7©2015 McGraw-Hill Education. All Rights Reserved The Japanese Growth Period15-8©2015 McGraw-Hill Education. All Rights Reserved What Happened?•Overvalued Japanese commercial and residential real estate•In 1990, the total value of Japanese real estate exceeded that of the United States•Overvalued stock market•Nikkei 225 peaked in 1990 at nearly 20 times its value from 20 years earlier. (The U.S. stock market was about 5 times its 1970s level in 1990.)15-9©2015 McGraw-Hill Education. All Rights Reserved Simultaneous Crashes•50% drop of real estate•Immediate 50% drop in stock values•A total of a 80% drop between 1990 and 200415-10©2015 McGraw-Hill Education. All Rights Reserved Japanese StagnationNote that the left axis scale is the same as the graph for 1955-197015-11©2015 McGraw-Hill Education. All Rights Reserved Being Passed by China & Left Behind15-12©2015 McGraw-Hill Education. All Rights Reserved What they TriedInfrastructure Building BingeConsumptionStimulus15-13©2015 McGraw-Hill Education. All Rights Reserved What they TriedGave up on both15-14©2015 McGraw-Hill Education. All Rights Reserved Deflation15-15©2015 McGraw-Hill Education. All Rights Reserved Why Didn’t Fiscal Policy Work?Deflationary ExpectationsASPIRGDPAD1RGDP*PI*AD2ShockAD3DFPNDFPDeflationary Expectations15-16©2015 McGraw-Hill Education. All Rights Reserved U.S. Policy Attempts to Avoid The Japanese Stagnation•G.W. Bush •Tax Rebates•TARP•Federal Reserve •AIG Purchase•Quantitative Easing•Obama•Stimulus package15-17©2015 McGraw-Hill Education. All Rights Reserved So Could It Happen?•Yes. •Contractions preceded by financial crises are very difficult to recover from.•Great Depression•1929 to 1939 (the ramp up to World War II)•Japan •1990 to ???•Europe and the U.S. •2008 to
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