Click here to discuss this piece at First Drafts, Prospect’s blog
Following the demise of Lehman Brothers, Merrill Lynch and the giant insurer AIG, pundits have been quick to compare today’s turmoil to Wall Street’s great crash 79 years ago. This has now been billed the worst financial crisis since the great depression. This may be true for Britain and the US. But a more recent parallel may be drawn with Japan’s so-called “lost decade.”
Unlike the events of 1929, the Japanese debacle occurred very much within living memory, and its causes remain the subject of heated debate. But the facts are broadly these: the Nikkei index of leading Japanese shares peaked at 38,916 on 29th December 1989 at the end of a five-year long orgy of debt-fuelled speculation, centred largely on the real estate market. During the fat years, banks lent against property in the confident expectation that prices would never fall. For a while, they were amply rewarded: share and real estate values rose fourfold between 1984 and 1989. It took time for the crisis to bite hard, but from 1990 share prices started a 13-year decline, punctuated by sharp rallies. Over that period they gave up all their bull market gains, and by 2002, the stock market was back where it had been in 1984. Property values also crashed. In total, the long decline wiped out ¥1,500 trillion ($14.2 trillion) of national wealth, equivalent to three years of Japanese GDP. It was the largest such loss experienced by a nation in peacetime.
If you are a subscriber, please log in »
This article is available to subscribers only
Subscribing to Prospect is the most reliable and convenient way to receive the magazine every month, and offers the best value.Subscription Types:
Online
An online subscription offers you complete and unlimited access to the entire website, including our searchable archive of every back issue of Prospect, and a PDF edition of each new issue: all this for just £20 per year. Purchase an online subscription »Renewal
Renew an existing subscription »Institutional access
If you are a library, business organisation or any other large institution that needs a multi-user licence, you can obtain institutional access.
Share
Subscribe to post comments
Print
