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Hanke and other economists see some similarities with Japan’s decade-long economic malaise – combination of real estate asset bubble, banking crisis and misguided and expensive government intervention.

“A lot of the symptoms of the pain and adjustments will be exactly the same, “ says Hanke, now with the Cato Institute and Johns Hopkins University. “We've got some major adjustments coming in the economy, some major slowdowns.”



Depending on who you ask, that means anywhere between two to five years of no growth or slow growth, while the government rescue plan plays out along, the housing and real estate sectors stagger to recovery and the American consumer restores his own shaken balance sheet.

Opponents of the $700 billion plan see no payoff for the real economy. “This plan is not about housing, not unless you’re talking about investment houses,” says FAO-Economics Chief Economist Robert Brusca. “This is not a plan aimed at reviving the economy. This is all about trickle down.”

For Investors

Even those who view the plan as necessary but insufficient see hard times ahead.

“The consumer needs repair, job layoffs are increasing, real wages are not increasing,” says money manager James Awad, managing director at Zephyr Management. “In the corporate sector, everybody’s in a protect-your-balance–sheet-mode. Most corporate executives are going to think cash is king. Overseas economies are slowing, which means exports are going to be a bit slower. So, that leaves the government and the government is constrained by huge deficits.”

Are we there yet? Sorry, but no.

“This is the beginning of the adjustment and the Fed and Treasury intervention is slowing that down,” says economist Ram Bhagavatula, managing director at the hedge fund Combinatorics Capital. “Its not like this economy is ready to go if credit is cheap and flexible.”

“I think it is horrendous,” says former FDIC Chairman William Isaac. “There are less expensive ways to stabilize depositors if people are nervous.”

Isaac notes that there were some 3,000 bank and savings and loan failures between 1980-1991; depositors didn't panic “because they had confidence in the government,” says Isaac, now chairman of the Secura Group of LECG.

Japan Vs. US Cases

Most economists say the Japanese government made the mistake of extending the country’s financial problems by one form of intervention or the other – corporate aid packages, repeated stimulus packages with one-off tax rebates that consumers didn’t spend and ever lower interest rates. The stock market sank and then languished for years.