Monday, October 10, 2011

The Lost Decade

Will the US economy go through a "lost decade" like Japan went after the burst of the bubble in the mid 90s? This is a question that gets often asked when comparing the current economic environment in the US to the one in Japan in those years. Lots of similarities: a bubble that burst, the fear (or reality) of deflation, a central bank with limited tools at its disposal, etc

But if you want to be really pessimistic, you can also look backwards to the previous decade, a decade that along some dimensions has also been lost. Here are three variables that show a downward (or flat) trend starting abut 10 years ago. No clear link between the three but interestingly a very similar pattern. The US economy showed weaknesses starting 10 years ago. They were not generalized and some measures of economic activity were doing ok, but it is interesting to see how others were not progressing anymore or even heading in the wrong direction starting around 2000.

                        US Stock Market (Dow Jones Index)

Antonio Fatás