Does the US Face Another Lost Decade?
publication date: Mar 26, 2010
Many commentators warn that the US faces a Japanese style 'Lost Decade' after the implosion of the credit bubble, but by most measures it's already had one. Whether looking at GDP, consumption, income, or employment (or indeed equity returns) the last decade looks like the worst since the 1930's for the US economy. Before addressing why that has been the case, let's look at the pretty damning evidence. Looking at real GDP growth between economic troughs as defined by the NBER, the 2002–09 era was the worst since 1946–49 as the economy re-tooled from military production post WW2 (in these years, GDP averaged an annual decline of 2 percent). Average annual real GDP growth was 1.7% for the 2002–09 period, and even then only achieved through massive leverage, with by 2007 an astonishing $5 of debt being accumulated for each dollar of incremental income generated. In fact, even before the latest recession if we strip out the impact of $1trn in equity withdrawal from housing in boosting discretionary incomes and consumption, real GDP growth from 2000-2008 was just 1%, which was precisely the Japanese performance in the 1990's.
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