But in Japan, a stock market crisis immediately becomes a banking crisis because banks own large amounts of stock in corporations that are their customers. Japan's stock bubble was accompanied by a property boom, during which it was somehow considered reassuring for Japanese to joke that the palace grounds in central Tokyo were worth more than California. The property boom came to a screeching halt. Yet Japan's economy remains unstimulated. Compounding the problem with perverse policy, in 1997 tax on consumption was raised from 3 percent to 5 percent.
Households earn zero on savings accounts.
Today, the ratio of Japan's government debt to GDP is 130 percent, the highest of any G-7 nation. America's ratio is 32 percent, the lowest among the G-7. When Japan is in protracted stagnation, Asia cannot grow, which exerts some drag on America's growth. Yet even though Japan is about 15 percent of global economic activity, America boomed during Japan's bad decade. The average price of American stocks is 21 times earnings, higher than the historical norm of 14 times, but well below the recent peak of 35.