In view of the problems of the Japanese economy with no room for lower
interest rates and ineffective Keynesian spending programmes, then
Krugman's suggestion of a little inflation seems to be rather
ineffective given the gravity of the situation. Surely what is really
required is a socialisation/nationalisation of the debt so that it is
internalised withing society.
(Thanks Allin for the Krugman reference which I will follow up)
Andrew Trigg
> -----Original Message-----
> From: Allin Cottrell [SMTP:cottrell@ricardo.ecn.wfu.edu]
> Sent: 17 November 1998 17:56
> To: ope-l@galaxy.csuchico.edu
> Subject: [OPE-L:340] Re: RE: Re: a slaughtering of capital values
>
> On Tue, 17 Nov 1998 A.B.Trigg@open.ac.uk wrote:
>
> > Isn't this the problem with Japan, that there needs to be a
> > slaughtering of capital in order for the crisis there to be
> > overcome? Unless some banks in particular are allowed to go
> > bankrupt then there is no way out.
>
> Like Jerry, I'm not clear on the mechanism whereby bankruptcies
> are supposed to be helpful.
>
> > A Keynesian analysis would seem particularly irrelevant
> > here...
>
> Paul Krugman (http://web.mit.edu/krugman/www/) has an
> interesting analysis of Japan: he reckons it's in a "classic"
> Keynesian liquidity trap. Nominal interest rates are just about
> zero, so they can't be pushed any lower, yet investment is not
> sufficient to absorb full-employment saving. He reckons that
> Japan needs inflation (to generate a negative real interest
> rate), and is suffering from its "success" in lowering inflation
> to around zero.
>
> Allin Cottrell.