For the Japanese, “20 years of stagnation,” the statement actually some plausible, the public and even academics often the problem in Japan since the 1990s due to long-term deflation, but this is only one aspect of the problem. A more serious challenge comes from the long-term downturn in economic growth, that growth rate of real growth rate lower than the potential to lead to pessimistic economic forecasts; from the perspective of consumers and investors, the investment return is low, while the cost of debt Because deflation is still high, so rational behavior is prolonged deleveraging. The private sector to leverage further economic slowdown led to pessimistic expectations self-realization, to enter the next round of vicious circle.

It should be a clear concept, economists often say that the GDP growth is real growth discounting price changes, the actual growth rate of nominal growth rate and the difference shall be the inflation index. However, in real life, all economic activities are built on the basis of the name, whether corporate or consumer finance rather than constant prices are current prices. In other words, the nominal rate of economic growth and changes in cash flow decisions on behalf of the enterprise and the family’s expectations and micro-economic behavior.

Now let’s compare the before and after the crisis on behalf of the U.S. economy growth rate. In 2008, before the outbreak of the financial crisis in 1988 to 20 years, the United States in 2007 reached 5.6% nominal growth; and 10 years before the crisis between the nominal growth rate slightly to 5.4% (real GDP growth of about 3%, less is currently the U.S. Federal Reserve that the level of potential real growth rate), but still very smooth. This phase is the period of Alan Greenspan as Fed chairman, when the public opinion holds that the Fed’s monetary policy flexibly and effectively ironed out the economic cycle, that is, Greenspan is also proud of “great reconciliation” (Great Moderation ) period. At the micro level, business investment and consumer spending were established in the name of this highly Zeng Changshuai boom over, Yin Wei Shuai business investment return and the pay level gone up; at “Big Diaohu” during the 10 years since, the role of globalization also give the United States a large number of cheap goods and capital, to further enhance the business and household purchasing power, while causing over-leveraged, over-consumption of economic imbalances.

However, from 2008 to 2010 in the first quarter of the nine quarters, the average nominal growth rate of the U.S. economy has been hit hard, sharply to 0.9%; and two years after the collapse of Lehman, the nominal economic growth rate is still far lower 5.4% in pre-crisis level. More worrying is that the unemployment rate has hovered at more than 9% for 15 months, almost half of the unemployed has been more than six months without work, re-employment increasingly difficult. This not only severely inhibit consumption growth also means that human capital and serious loss of national competitiveness. In contrast, in 1992 and 2001 mild recession, the U.S. economy up to two years to the level of potential growth rate on the back. The Fed is concerned, this growth remains in the doldrums of the phenomenon is indeed not seen for 20 years, the changing situation.

In this sense, the 20th century, the Japanese 90’s will have a comparable dilemma. In 1992, the decade before the crisis, the Japanese economy, nominal growth of 6% and a nominal salary growth rate of 5.8%. However, escalation of the crisis year of 1992, after the nine-quarter average growth rate of nominal GDP fell to about 1%. Since then the Japanese economy began a painful and long period of slow growth in fiscal 1994 to 1996 three years, the average nominal growth rate of only 1.8%, then it is extended to the “lost decade”, or even the second “lost decade.” At the micro level, because asset prices, economic downturn expected, banks, businesses and the economic behavior of the family is no longer a profit-maximizing criteria, become liabilities minimized. This has resulted in protracted deleveraging, no matter how abundant liquidity, low interest rates and more, micro-economies, just to protect themselves, rather than aggressive expansion through borrowing, until the full balance sheet repair, Zhaiwu resistance to fade away. This is a famous Japanese economist Koo “balance sheet recession” theory. This layer sense, deflation is not only long-term downturn in economic growth because, it is the inevitable result.

In contrast, the situation today, how is the U.S. economy, micro-level “balance sheet recession” is far from over, the macro level may have to accept a lower level of potential growth, and even the risk of entering a deflationary trap. For Bernanke and his colleagues, the tragedy of the Japanese economy in the United States fear a repeat of concerns not only real, but also urgent.

A surprise return to quantitative easing, the Fed, more of a preventive measure. Bernanke speaking, the response to long-term economic downturn and deflation the best way is to avoid falling into this predicament; and monetary policy, “two options, whichever is less,” controlling inflation than the inflation control contraction is much easier, much less social cost should be. In 2002, in his famous speech, “Deflation: to ensure that it is not happening here,” in Bernanke, “in paper money system, a determined government can always create more spending and positive inflation,” thus avoiding the occurrence of long-term deflation; and its main policy instrument is to buy long-term bonds, the so-called quantitative easing. The short term, employment and growth if the U.S. data did not significantly rise, the Fed re-opened the floodgates of basic quantitative easing a foregone conclusion.

However, the continued quantitative easing, is really a panacea for U.S. economic recovery to stimulate it? The answer is probably no.

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