The Nikkei just had its worst day since 1987, and the U.S. stock market, which already took a dramatic dive Friday, is tumbling further this week. While it was America's poor jobs report that spurred the global sell-off, there is much we can learn from other countries' experiences—particularly Japan's.

There was a time when leading economists predicted Japan would overtake the United States as the world's leading economy. Instead, the Japanese central bank's loose monetary policy produced a real estate bubble, which eventually burst. The government responded with "stimulus" and easy credit, which dramatically increased the nation's debt and extended the poor economic conditions. The result was the "lost decade" of 1991–2001, characterized by multiple recessions, poor economic growth, high taxes, and high inflation.

In the U.S. now, the total debt held by the public recently surpassed $35 trillion—just 209 days after hitting $34 trillion. Add unfunded obligations for Social Security and Medicare, and that $35 trillion becomes $113.2 trillion. 

And yet, few Americans seem to be phased by the news. Economist Brian Reidl laments, "Few voters, or even politicians, have fully grasped how perilous Washington's fiscal outlook has become."

Japan's lost decade didn't just hurt government balance sheets; it brought long-lasting damage to the Japanese people. As deficits and debt crowded out government spending, life became increasingly expensive for the average person in Japan. Despite two short-lived income tax cuts (a yearlong tax cut from 1994–1995 and a two-year cut spread from 1998–2000), long-term aggregate consumption was hindered when the government raised a consumption tax to pay down the rising national debt.