Not too long ago an industrial giant experienced one of the greatest economic booms in its history. Thanks to easy credit and low interest rates, investors in that country ran up astronomical debts and used those proceeds to bid up the price of real property and the stock market. With home values and pensions way up in value, folks were feeling very secure about their economic futures. For the average investor in that country it seemed like the good times would never end.
Then the bottom fell out. Realizing the boom was becoming unsustainable, the country’s central bank raised interest rates. Suddenly, the enormous debt built up during the boom years went bad. Banks began to fail and the government responded by bailing out the financial institutions which were "too big to fail," in order to avert a total collapse of the economy.
Anyone who remembers the 1980s and early 1990s know the country in question is Japan. Beyond bailing out the too big to fail banks, the Japanese government also attempted to use fiscal stimulus and the Japanese central bank attempted to use low interest rates to produce an economic recovery. The result has been two decades of little or no economic growth and an unemployment rate that has hovered around two times what it was in the 1980s. This period in Japanese history has come to be known as Japan’s Lost Decades
Now, you may have guessed that the country being described in the first two paragraphs above was the United States. Obviously, you would have also been correct. During the 2000s, we experienced our own phony, central bank-induced economic boom. Easy credit and low interest rates were used by many Americans to amass huge debt while bidding up the price of housing and the stock market. New-found wealth through asset appreciation gave many a false impression that they were set for life and the good times would never end.