World economies (PHD level) Essay Example | Topics and Well Written Essays - 3750 words

World economies (PHD level) - Essay Example The economy had cheap money floating which was invested by the public. The borrowings were then invested in the stocks and securities in the domestic market as well as foreign markets directly opposite to the reason of borrowing. The banks and other institutions lent the money to be invested in land holding but instead it was invested in stock markets (The Lost Decade - Japans Economic Crisis). According to the article ‘The Lost Decade - Japans Economic Crisis,’ the Finance Ministry after realizing this increased the interest rates which caused the stock market to crash big time. The increase in interest rates caused the banks to go in large debt crisis due to huge bad debts. And even those official numbers dont capture the full size of the flood of cheap money. This was also due to the fact that the banks and other institutions were selling bonds in the foreign market with a low interest rate which when swapped into yen, reduced the cost of money to zero. The Japanese banking sector was in crisis and many banks were bailed by the government or the whole banking sector of Japan would have been destroyed. The name Lost Decade was given because the Japanese banks were in no position to lend more money or do capital investment due to huge amounts of bad debts. The economic situation in Japan is now not as bad as the Lost Decade when the economic expansion had just come to an abrupt stop. Unemployment had rose and is still an issue but it is not at a level of crisis like in the Lost Decade. It is argued by many economists that the economic situation in America is on the path of economic crisis like the Lost Decade in Japan. The Federal Reserve of The Fed of US is also lowering the discount rate. As a result of this the growth in the American economy is slowly crawling upwards, the savings are invested in the real-estate which does not make any contribution to the country’s savings and the stock market