"US Economic Recovery Or Lost Decade?"

Aiming to assert control over the nation's economic debate, President Barack Obama on Tuesday warned Americans eager for good news that "by no means are we out of the woods" and argued his broad domestic agenda is the path to recovery.

Obama's message came on a day of conflicting economic indicators and Federal Reserve Chairman Ben Bernanke's suggestion that the recession may at last be bottoming out.

But, the president said, "2009 will continue to be a difficult year." He predicted more job losses, foreclosures, and gyrating stock markets.

The president devoted a significant portion of his speech to defending actions he has taken in the face of criticism he has heard mainly from Republicans — but also from some of the more conservative members of own Democratic Party — that he has "been spending with reckless abandon, pushing a liberal social agenda while mortgaging our children's future."

Not so, Obama said.

"The last thing a government should do in the middle of a recession is to cut back on spending," the president said. (Read Full Article)

The Japanese crisis of the 1990s and early 2000s had roots similar to the American crisis: a real estate bubble that collapsed, leaving banks holding trillions of yen in loans that were virtually worthless.

Initially, Japan’s leaders underestimated how badly the real estate collapse would hurt the country’s banks. As in the United States, a policy of easy money had fueled both stock and real estate speculation, as well as reckless lending by banks.

Many in Japan thought that low interest rates and economic stimulus measures would help banks recover on their own. In late 1997, however, a string of bank failures set off a crippling credit crisis.

Prodded into action, the government injected 1.8 trillion yen into Japan’s main banks. But the injections — too small, poorly planned and based on little understanding of the extent of the banking sector’s woes — failed to stem the growing crisis.

Fearing more bad news if banks were forced to disclose their real losses, Japan’s leaders allowed banks to keep loans to “zombie” companies on their balance sheets.

Japan, instead, experimented with a series of funds, in part privately financed, to relieve banks of their bad assets.

The funds brought limited results at best, says Takeo Hoshi, economics professor at the University of California, San Diego. For one thing, the funds were too small to make an impact. The depository for bad loans had no orderly way to sell them off. And the purchases that did take place failed to recapitalize banks because the bad assets were priced so low.

So far, the Obama administration’s plan avoids the hardest decisions, like nationalizing banks, wiping out shareholders or allowing banks to collapse under the weight of their own bad debts. In the end, Japan had to do all those things. (Read Full Article)

Congressman Ron Paul's response to President Obama's Economy Speech

     Is the US on the road to economic recovery or a Japan like  economic "Lost Decade"? For some reason the Obama Administration, following the lead of the Bush Administration, is duplicating almost exactly what Japan did when their housing bubble collapsed in 1989, lowering bank interest rates to zero, bailing out banks and massive infrastructure spending, strategies which only exacerbated the Japanese recession. Though the Obama Administration talks about creating enduring US prosperity, as I see it, the Obama Administration is trying desperately to create other economic bubbles in health, green technology and housing. Genuine economic growth and long term prosperity can only come with a free market that is allowed to succeed and fail in line with natural economic forces not skewed by government intervention. In my opinion, President Obama, like his predecessor President Bush, only give lip service to being free market advocates. In reality Bush and Obama want the Federal government running what only appears to be a free market, such as what is being done with GM, Chrysler and AIG. President Obama obviously did his homework on the derivative market. Let us hope he will do his homework on Japan's "Lost Decade" (Please view Ron Paul's response to President Obama's Economy Speech in the YOU Tube video above)

tags: lost decade  barack obama  ron paul  business  politics  japan  free market  takebackamerica  

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