U.S. Japan Comparisons Again: More than One Route to Perdition

- "Aspects of the U.S. outlook have become more reminiscent of post-bubble Japan than during other (merely) cyclically weak periods. However, structural and behavioral differences from Japan remain very significant, just as before." 
- "In the U.S., a reality of disinflation has won over simplistic “hyper-inflation” forecasts. The risks of insufficient demand and deflation aren’t entirely negligible. For housing assets, the U.S. banking and GSE sectors seem poised to hold and work off bad debt gradually rather than purge it quickly. Fiscal intervention has been repetitive and insufficient to permanently change growth expectations, all ostensible similarities to Japan."
- "Monetary policy in the U.S. has been strikingly different than post-bubble Japan, particularly in the early aftermath of the Lehman event. However, it seems possible that inertia and misunderstanding keeps monetary policy in the U.S. from a truly aggressive track, even if warranted."
- "Even optimal monetary policy can’t generate higher living standards over the long run. But it can avoid lasting deflation (a spiral higher in the purchasing power of currency). The long-run monetary policy track in the U.S. has been and is likely to be more inflationary than Japan’s, as chronic currency strength in Japan and mild U.S. dollar depreciation also suggest."
- "Private sector behavioral differences remain vast. The U.S. labor market and capex are far more cyclical than in Japan, and suggest an early and lasting bottom. Even amid structural growth slowdowns in both economies, we believe cyclical differences will be notable. In effect, the U.S. is more prone to “boom and bust” than slow and lasting stagnation."


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