Japan still faces significant economic difficulties due to deflationary pressures and the fragility of its banking system, top White House economist Glenn Hubbard said Tuesday.
Speaking to reporters at the Foreign Press Center, Hubbard played down speculation by some economists that the current U.S. economy is facing a similar fate to that which befell Japan's following the collapse of the bubble economy in the early 1990s.
"The Japanese asset price runup was not so much based on fundamental advances in technology but on speculation in some unproductive sectors of the economy -- notably real estate," he said. "In the U.S., while there was clearly froth and speculation at the last stage of the bull market, we are left with a set of technologies, innovations, processes, that are still likely to have very large positive effects for the economy."
Hubbard said the Japanese economy "remains in significant difficulty, owing to familiar problems of deflation and financial sector misallocation -- the nonperforming loan problem."
Hubbard, chairman of the White House Council of Economic Advisers, was upbeat about the U.S. economy, however, saying the possibility of a double dip was "really remote."
Fears have mounted that a stock market slump triggered by a series of corporate accounting scandals could derail the U.S. economic recovery.
Hubbard also shrugged off fears of deflation in the U.S.
"I think there is very little risk of general price deflation in the United States," he said.
Asked how a possible U.S. military attack on Iraq would affect the U.S. economy, Hubbard said that, in light of the Gulf War, there could be a temporary surge in oil prices and a decline in consumer confidence.
"Both are fairly general lessons for any intervention in the Middle East," he said.