The current situation is much worse than Japan's "lost decade." Unfortunately, the crisis today is global in scope. When Japan went through its "lost decade," it was eventually able to export its way back to growth. That option does not exist today. Europe - particularly Eastern Europe - is contracting faster than the US; Japan is falling off a cliff; China is most likely already technically in recession. Trade and industrial production are actually contracting at faster rates than they did at any point during the Great Depression. It's not at all clear where global growth will come from at this point.

Obviously, we will have growth at some point in the future - maybe even in a year or so if we fix the financial system. But it might be five years from now. It might be ten. It might be longer. But there are social factors at work here complicating the picture. There is most likely going to be substantial social unrest around the world in the next few years. Eastern Europe and China are probably the most immediately vulnerable areas. It's impossible to predict what the consequences of potential social unrest or governments collapsing (like Latvia last week) would be, but they need to be considered in assessing how bad this current crisis could become.

This is not to say that we're all going to start living in a Steinbeck novel, or that shanty towns will start propping up everywhere. Our standard of living will go down, but we'll still live better than we did thirty or forty years ago. But we are going through an economic reset. This will be much worse than the mild recessions we've become accustomed to.