One key difference between Japan at the start of its 'lost decade' and the UK and US is that the Japanese had very large personal savings even before the banks screwed up. We don't. I'm not enough of an economist to know the extent to which this will make a difference but it can't possibly be in our favour...
Oh dear: I do like to be a good free-market/libertarian man, at least of the moderate sort, but I suspect that the figures in the graph and the associated policy are not as clear as indicated in the main post. However I am not certain, as the information is only recently acquired, and only from Wikipedia; still, here goes.
If the 'liquidation' policy (blue curve) has its starting point at the Wall Street Crash of 1929, my understanding is that the following two or so years had a government policy substantially of non-interference. Is this not pretty much the same as that leading to the 'zombie' policy (greenish, on my screen at least)? Anyway, President Herbert Hoover changed his policy, to be much more interventionist. He did this late in his presidency, lost the election, and all credit for the partial turn-around has been given to his successor: President Franklin D. Roosevelt.
It also seems to be the case that Herbert Hoover was only President for some 6 months prior to the Wall Street Crash of 1929, so there should be some doubt as to his guilt in causing it. He might well not be so very innocent, as he was Secretary of Commerce for the 7 preceding years, and clearly had a great deal of influence on commercial and financial policy during that period.
For the present, overall, it seems to me that we are all struggling to understand how we have got into the mess we are in, and how best to get out of it. I really do not know, except to say that:
(i) As government licences all limited liability companies (in particular, just now, including banks) and sets rules for and oversees their accounting, fault lies at least partially and significantly with government. Further fault lies with government policy that has stimulated, for political purpose or otherwise, unsound financial policy in the banking (and also industrial and commercial) sectors.
(ii) Despite the legal authority to be mindlessly careless with other people's money (and even one's own), there is not actually any compulsion to do so. Why is it that these so-called 'Masters of the Universe', as with so many other experts, have a lemming-like quality about their decisions? Is this a fundamental personal insecurity, or what?
(iii) There has clearly been a lack of prudence concerning financial clarity of accounts: by banks, by government and by significant parts of the rest of big business. [And more bad news from this is surely still to come.]
(iv) Those who write about the fault lying entirely with the free market or, alternatively, entirely with government are, as far as I can see, being distinctly narrow-minded: most likely also highly partisan to their political corner. We are not helped by this.
(v) The biggest losers are (sadly) neither government nor bankers: would anyone like to hazard a guess as to who is going to pay most and suffer most?
Best regards
I'm not sure you're comparing like with like. In the 1930s, currencies were linked to gold, and there was little understanding of the money supply. Because of this, monetary policy was not used to mitigate the problems in the way it would be today.
The other thing is that bank deposits were not guaranteed by the state in the 1930s, so as banks failed, many people lost their savings. These losses directly affected the broader measures of money supply (M1 upwards). As the money supply fell, the economy tipped into deflation and recession.
Commenting by HaloScan
