America’s crisis in a historical context | Worse than Japan? | The Economist

THERE is one consolation for the depressing instability of finance. History offers a rich array of banking crises from which policymakers can draw lessons—and against which today’s rescue plans can be judged. According to an IMF database, there have been 124 “systemic” banking crises since 1970—episodes in which bad debts soared across the economy and much of the banking sector was insolvent.

Most of those were in the developing world. But the list also includes half a dozen rich-country crashes, from Japan’s slump after its property bubble burst in the late 1980s, to the Nordic bank crises in the early 1990s. All involved deep recessions, required massive government intervention to clean up bust banks, and led to big increases in public debt as economies shrank while government spending soared. But the speed of recovery differed dramatically; Japan endured a decade of economic stagnation, whereas South Korea returned to growth within two years of its 1997 banking disaster.

Received wisdom holds that policy choices determined the pace of recovery. Sweden rebounded quickly because it acted fast: removing dud assets from banks’ balance-sheets, recapitalising weak banks and nationalising where necessary. Japan stalled for a decade because it took years to recognise the scale of its mess. In his first presidential news conference on February 9th, Barack Obama pointed to Japan as an example of what not to do. Its “lost decade”, he argued, was the consequence of “not act[ing] boldly or swiftly enough”.

There is truth to that analysis. Japan’s central bank took too long to fight deflation; its fiscal stimulus was cut off too quickly with an ill-judged tax increase in 1997; and it did not begin to clean up and recapitalise its banks until 1998, almost a decade after the bubble had burst. But the history of bank failures suggests that Japan’s slump was not only the result of policy errors. Its problems were deeper-rooted than those in countries that recovered more quickly. Today’s mess in America is as big as Japan’s—and in some ways harder to fix.

I know as well as anyone that the stimulus package passed by Congress this past week is not perfect, and it certainly has its naysayers everywhere … but no one seems to be able to proffer a reasonable alternative, and many of the arguments I’ve been reading against it are misleading, if not outright lies.

For example, one of the comments on my “Stimulate Me” post a few days ago seems to have originated on the following blog Mike Morgan Behind Enemy Lines.

One of the things that blog post says is:

Family C – Husband and wife with 13 and 19 year old children. One in high school and one working full time because the family can’t afford to send her to college. Missy works at minimum wage in a local fast food restaurant.

Husband and wife recently lost their jobs. He spent 18 years at the same job as a mechanic. She spent 18 year at the same job as line person at a furniture manufacturer that went out of business. Instead of collecting unemployment, Mr. and Mrs. C work for $8 an hour.

Family C does NOT own a car. They use mass transportation. They do not own a house. They have been renting all of their lives because they never earned enough to save. And their kids get no allowance. Family C has no health insurance and Junior has severe autism requiring medication and special food that Family C cannot afford.

Family C is behind on their rent and were just evicted. Mr. C lives in a men’s shelter and Mrs. C lives in another shelter. Mr. & Mrs. C still go to work everyday and are trying to save enough to rent another apartment.

ObamaRamaLama – Family C . . . too bad, because you get zip. Since you don’t own a home and you didn’t go out and get a zero down mortgage with no payments for the first year . . . that reset in year three with a whopper of a payment . . . you get zip. Tough love. Go live on the street. Eat dog poop and die. Sounds harsh?

But here’s what Family C really gets:

  • A tax credit at a rate of 6.2 percent of earned income (after federal taxes are taken out), up to $400 for individuals and up to $800 for couples, in 2009 and 2010.
  • Access to the expanded Supplemental Nutrition Assistance Program (formerly the Food Stamp Program)
  • Households making at least $3,000 can subtract $1,000 from their tax bill for each child in 2009 and 2010.
  • Financing for job training related to health care and the environment.
  • Public assistance for child care.
  • Short-term or medium-term housing assistance or relocation assistance to prevent homelessness.
  • Assistance for low-income individuals with Medicare Part B premiums through 2010. Medicare Part B helps cover medical services like doctors’ services and outpatient care.

Source: New York Times

Mike Morgan’s fear-mongering post is filled with so many inaccuracies and outright lies that I would find it difficult to take any of his advice seriously. He’s another blowhard who never has anything good to say about anyone but himself.