@Aurelija's

After a relaxing and entertaining previous week in Stockholm I was thrown back to the harsh reality of the financial markets this week - the most chaotic week so far during the past few months. Sufficient it is to look at the stock markets - Chinese Hang Seng lost over 9% in a week, the US' S&P over 6%, and even the German DAX lost close to 7%.

Things are getting worse much faster than expected - this week Fed officially acknowledges that the economic slowdown is not due to temporary factors, and that the risks for much more pain ahead are high. On the other side of the Atlantic ocean the Greek drama continues, with the Greek finance minister saying that 50% debt write-down is one of the options for his country. Meanwhile, even the euro area's growth engine - Germany - loses its shine as the closely watched industry indicator - PMI - disappointed. Next Monday's Ifo will likely be along the same lines.

The most worrying thing about the situation is not that we are heading toward a double dip. It's rather a fact that we did not get back from the 2008- recession in the first place - especially looking at the US job market. The deleveraging continues and the zero-interest rate world is here to stay for a few more years to come - at least. The deja vu moments emerge now that even ECB, having raised the interest rates earlier this year, might be considering a cut as early as within the next few months.

No light seen ahead any time soon, and the question is - how long the situation will continue. Zero interest rates, no growth, falling stock prices, deleveraging - sounds like Japan since early 90s.

I think the risks that we end up in the Japan's "lost decade" are high. Now many people think so. There are some "buts", however. I read a lot about the Japanese experience, and if someone asked me "why we are not facing Japan's lost decade" at the moment I would point out the following things.

1) Urgency. The Western leaders showed more timely response to the crisis - vast fiscal, monetary easing were thrown fast and in a coordinated fashion.
2) Japanese were big savers - in 80s-90s the savings rate was around 14-18%. Westerners are not - neither by figures nor by mentality. US savings rate increased during crisis but still remains at below 5%.
3) Japanese "zombie" banks limped on for years - they didn't write down the bad assets. Many bad Western banks - Northern Rock, Lehman, etc - were let go, and many had to write down the toxic stuff.
4) Labor market flexibility. Japan was slow to lay off workers (part of the culture "jobs for life"). The Western world, especially the US, did not hesitate - thus the companies increased efficiency (and hence profitability) fast.
5) Japan faced ageing problems then. The Western world, especially the US, is relatively young, still.

So, I guess, everything relies on the consumers now - whether they will keep spending instead of putting away money for the 'rainy day'. The latter tendency may cause a deflationary spiral. An then we will end up in the lost decade - or more - for sure.

Sweet dreams.