Part 1 and 2 of this series examines the Japanese banking crisis and how a similar model may play out again in the U.S. You can read Part 1 and Part 2 of “Did the solutions to the last credit crisis work?” by clicking above.
The credit crisis in Japan led to an extended period of low or no growth. This was a “problem” when contrasted against the prior decades of very fast growth.
In this article, I will illustrate this problem by looking at the major Japanese stock index, which is still below prices seen before the crisis.
If this pattern repeats itself in the U.S. by removing returns on investment in the U.S. stock markets, it may ultimately weaken the USD as traders look elsewhere for yields. Similarly, the decline in equities may continue to push the JPY up in the short term as traders continue to be squeezed by a changing risk environment.
Ultimately the information we learn from this crisis can help us anticipate the next one on the horizon. For example, the Chinese currently face a mass of nonperforming loans that rivals the bad debt problems in the U.S. When this crisis emerges, you can be prepared to take advantage of it as an investor, because you have seen it before.
John Jagerson is the author of many investing books and is a co-founder of LearningMarkets.com and ProfitingWithForex.com. His articles are regularly featured on online investing publications across the web.