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The recent U.S economic expansion, after slowing down over the last ten months, came to a complete halt in January 2001. This business cycle has come after the longest postwar [1990-2000] ten year growth at an average growth rate of 3 % and has led many economists and analysts to start posing questions of the prospects of a US Recession [there have been two consecutive quarters of zero growth].

Unique US Business Cycle

Larry Summers, the outgoing US treasury secretary, argued in Switzerland in his February speech that the current US economic cycle might be different from previous post-war cycles. Typically excess demand causes inflation to take off, forcing interest rate rises from the Federal Reserve Bank, which squeezes demand. As inventories build up, firms cut production. The economy thus moves into a recession.

This expansion, Summers argued, is more like that of Japan in late 1980’s – i.e. driven by credit. The absence of inflation has allowed the expansion to continue longer but at the cost of greater accumulation of debt.

Japan & USA Boom Bust Cycles - Similarities & Differences.

The USA and the Japanese economic GDP's together comprise 40 % of the world's GDP. Because the Japanese economy is almost at a standstill [ until such time as the banking bad loans can be sorted out ], it is important to consider the similarities and differences between the US and Japanese economies. This will allow the assessment of how this risk of a recession in the US is to be measured accurately.

In the table below are summarized the most important symptomatic areas of the financial and economic scenarios of Japan and the US; actually the same sort of situation gave rise to recessions in Britain and in Sweden during the 1980s.

No.	Symptom of Bubble	U.S.A.	Japan
1.	Property Market.	Contained Valuations.	Ridiculous Over -Valuations.
2.	Stock Market.	Internet Dot Com mania-Nasdaq bubble peaks at 5200 in Quarter 1, 2000.	Nikkei peaks in 1991 at 16,000.Currently at 1400.
3.	Household Stock ownership	180% of disposable income.	90 % of income.
4.	Business Investment Growth.	From 9 to 15% GDP over last 10 years.	13% to 19% of GDP from 1980 to 1991.
5.	Labor Productivity Growth.	High.	Higher than USA.
6.	Market & Institutions.	Open & Controlled.	Not Transparent & Regulations weak.
7.	Credit Generation.	Via Capital Markets.	Via Banks.
8.	Institutional Policy.	Transparent Accounting with few exceptions- Lucent, Oracle – Tech Stocks.	Shady Accounting Practices.
9.	Financial System Policy.	Mature after learning from 1930 Crash.	Still working out its problems.
10.	Personal saving rate.	Negative.	High
11.	Current Account Deficit.	Deficit- vulnerable to a Dollar crash / weakness.	Surplus.

From the above table there are notable differences and the fundamental ones that will perhaps not allow the US economy to suffer in the same long drawn out tortuous way as Japan’s economy - and the fact that US has a lot more proactive, balanced and transparent controls and policies.

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