The Burst of the Bubble and the Political Economy of the 1990s Depression

Abstract

The features of the Japanese economy have changed greatly in the 1990s compared to the 1980s. The economy shifted to an extremelylow growth trend and its continuous depression has caused international concern among the advanced countries. A major cause of these difficulties was clearly the swell of the huge bubble in the speculative trading of shares and real estate in the late 1980s, and its subsequent burst. This resulted in an enormous amount of bad loans for Japanese financial institutions, generated a credit crunch, worsened the assets of firms and households, and caused uninterrupted business failures and a vicious circle of asset deflation.The swelling of bubbles caused by mobilizing the ability of the credit system to expand, and their resultant destructive burst, have been seen frequently in the history of capitalism – for example, the tulip crisis in the Netherlands and the South Sea bubble in the UK in the nascent period of capitalism in the seventeenth and eighteenth centuries, the cyclical crises in the nineteenth century, and the great crisis of the 1930s. In the world economy since the late 1980s, the tendency of capitalism to cause speculative bubbles that eventually burst has reappeared.