US and Japan

In an effort to ease the credit crunch, central banks around the world are racing to the bottom. Last Monday (Dec. 15), the US Fed cut the key rate to 0.25%, the lowest rate ever in history. Today (Dec. 19), the Bank of Japan reduced its key rate to 0.1%.

Welcome to the world of ZIRP: Zero  Interest Rate Policy (the difference between 0.25% and 0% is negligible). There is substantial theoretical and empirical debate on whether ZIRP actually works, but the level of the interest rate simply highlights how serious the problem is.

There are some concerns on whether US will experience the same prolonged (almost two decades long) economic stagnation Japan did. There are several reasons why it is highly unlikely to happen.

1. Spending and saving behavior
One of the reasons for Japan's rapid economic growth after World War II was the massive amount of savings households make. These savings were utilized for investments, leading to the rapid industrialization.However,  provided for