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2002 October 01 Tuesday
Bad Banks Not Japan's Biggest Problem?

The article has some charts that are well worth a look. The chart that shows the percent annual change in aggregate lending tells a gruesome story. But Peter Tasker of Tokyo hedge fund Arcus Investment does not believe bad banks are the cause of the lack of new lending:

Mr Tasker questions the argument-common among analysts in Tokyo - that Japan's economy is suffering because banks are lending to the weakest companies and neglecting young, promising ones. He points to evidence that US and European banks operating in Japan without bad loans are also shrinking their lending base. "I don't really accept that there are high-quality options for lenders out there that are not being funded," he says. "If there was genuine demand for capital, you would have high interest rates, which you simply don't have."

This seems like a compelling argument. The alternative explanation is that a shrinking money supply and the deflation that it causes is making too many businesses unprofitable and hence not worthy to be recipients of loans.

Could the Bank Of Japan reflate the economy? Well, they can't do it by lowering interest rates. But they could more aggressively buy up public debt. They could buy all new debt issues of the Japanese government while simultaneously buying up government debt that is in other hands. The government could cut taxes and have the BoJ buy up all the increased government debt that results from the tax cuts.

Share |      By Randall Parker at 2002 October 01 03:17 PM  Economics Political


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Comments
Insivible Scientist said at October 2, 2002 11:58 AM:

Randy,

Buying all the public debt from the open market
merely saves the big creditors. But what is needed
is to forgive the debt of the majority, the lower
90 % of the nation who are in danger of going
bankrupt, they are the ones who give money
to the upper class. This means printing NEW money,
FRESH money, money that is FREE from the credit
system. The latter has never been done in the US
or in a modern industrialized countries in
modern history. The US gov't has NEVER printed
money in modern history, but just borrowed and spent.This made the creditors stronger and stronger
overall, despite occasional defaults.


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