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|