Is the U.S. in for a 'lost decade'?

With the economic recovery faltering, many Americans are wringing their hands, says Rick Newman at U.S. News and World Report, and wondering how long the pain will last. For answers, economists are looking to Japan. In the 1980s, the Japanese economy was "going gangbusters." The boom inflated a real-estate bubble, much like the one in the U.S. in the early 2000s. Then, like ours, it burst. "The collateral damage sent Japan's economy into a 10-year tailspin." If the U.S. follows a "Japanification scenario," it will be an "economic wasteland" in 2020, with stocks down 60 percent, and home prices off by half. But we've already avoided many of Japan's errors, so our "lost decade" will probably only last a couple more years. Here, an excerpt:

Federal Reserve Chairman Ben Bernanke intently studied Japan's lost decade while a scholar at Princeton, and chided Japan's government for responding too slowly and weakly. When the U. S. economy hit similar obstacles, Bernanke's Fed deliberately avoided many of the mistakes now attributed to Japan's central bank in the '90s. The Fed cut interest rates to stimulate the economy more quickly and deeply than the Bank of Japan did. It also took the more unusual step of buying about $1.5 trillion worth of mortgage-backed securities, pumping money into the system, and stimulating demand for other types of securities — like stocks...

Then there were the bank bailouts that began during the Bush administration. As unpopular as they were, those "capital injections" directly addressed a problem that bedeviled Japan in the '90s: "zombie" banks that were financially crippled but stayed in business, sitting on vast amounts of money that otherwise would have been loaned and invested, generating badly needed economic activity. The bailouts more or less worked: The U.S. financial system is healing, with bank lending to big companies pretty much back to normal.

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Read the full article at U.S. News and World Report.