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Everyone is talking about a WSJ article, This Time, Maybe The U.S. Is Japan, in which reporters Matt Phillips and Justin Lahart conclude from talking to traders and investors that the similarities have never been more apparent.The comparison got stronger this week after America’s credit rating was downgraded by S&P and Bernanke pledged two more years of zero interest rates.
Japan was first downgraded from triple-A in 1998 and has had near-zero rates for the better part of a decade. Both factors have kept the government from reversing a decline in the Nikkei from 1989 through today.
One former Fed economist is starting to believe:
As an economist at the New York Federal Reserve, Kenneth Kuttner wrote a paper explaining why, in the aftermath of the dot-com bust, the U.S. was decidedly not like Japan. The stock market decline paled in comparison to the bursting of Japan’s real estate bubble, the financial system was strong and the U.S. government had the fiscal leeway to boost spending if the economy weakened. “It was very easy to be smug at that point,” says Mr. Kuttner, now a professor at Williams College. “Now, I’m running out of reasons to say the U.S. is all that different.”
There may be little Bernanke can do to ward of deflation:
“We didn’t make (Bank of Japan-style) mistakes, but this is an issue that monetary policy alone might not be able to fix,” says Mr. Kuttner.