Many people considered that the issue of US economic crisis will be addressed with the implementation of the $787 billion Stimulus bill. They anticipated that the bill will help the US to get back on the right financial track. But the Stimulus bill will not be useful in the process of economic recovery as there are vital reasons behind it. The financial collapse in the US is no different from the 90’s economic depression in Japan. Interest cuts and Keynesian expenses were implemented to address the colossal financial collapse in Japan, but it miserably failed. The US repeated the similar mistake by reducing the interest rate that had a terrible impact on the stocks as well as on real estate prices and it also resulted in inflation. The values of stock and real estate will eventually drop and Japan had to undergo similar crisis but on a bigger scale.
Different financial management strategies were implemented by Japan to deal with the financial collapse for instance reduction in the interest rates, nationalizations of banks as well as introducing stimulus bills. It resulted in artificial deflation that led to a drop of prices. Consumers stopped purchasing as they expected further drop in prices and the consequences were disastrous. If we follow the similar financial strategies of Japan then it might lead to the same direction.
Japan introduced minimum six Stimulus packages approximately 65 trillion yen between 1992 and 1995. The average annual stimulus amounted to approximately 3% of Japan’s GDP. In 1998 it mounted up to 8.5% and still there was no significant result. Remember that 6% of the Gross Domestic Product is the stimulus packages in our country. So there will be no noteworthy result in the US as well.
J. R. Holmes is a financial writer and a market analyst. His forte is credit repair and consults people on repairing their credit. He is also an active member of many financial communities.