The Economist compares the current recession to Japan in the 1990s. It’s a grim read, not least because of how many Americans borrowed recklessly for so long:
The rebuilding of American households’ balance-sheets is likely to force a reliance on government demand that is bigger and longer-lasting than many now imagine … With their assets worth less and credit tight, people will be forced to save much more than they used to. The household saving rate has risen to 3.6% of disposable income after being negative in 2007. For much of the post-war period it was around 8%, and in the short-term it could easily exceed that. But, whereas dis-saving by Japanese households countered the corporate balance-sheet adjustment, American firms are unlikely to invest more while consumers are in a funk. Propping up demand may therefore require more persistent, and sustained, budget deficits than in Japan.
Hence the greater early emphasis on fixing the government’s long-term indebtedness. The US has little chance of sustaining its short-term borrowing needs without it.
The Dish 