It’s from October last year, but still worth listening to if you haven’t already. It’s about an hour.

Thanks for giving your perspective.

For me, Kobayashi looks like exaggerating the influence of nonperforming assets to economic crisis. I don’t belittle the seriousness of nonperforming loan problems, but Japan’s recovery after banking crisis was brought about not merely by the restoration of market confidence in financial sector (again, I don’t deny it), but mainly by the world (especially US) gobbling up Japanese products. Net exports in Japan showed negative sign in 1996, but since then, its share in GDP kept rising and reached 5% in 2007. As a result, net exports contributed the most to overall growth in 2002 to 2007 even though its share is only one eleventh of private consumption, the largest item in GDP. Kobayashi slightly mentions Japan’s recovery, saying “Only after Resona Bank had been temporarily placed under government control, …, did stock prices finally pick up and people come to embrace the recovery.” But that recovery was the result of external demand, which was somewhat reinforced by currency market intervention. In that sense, Japan has not yet fully recovered from the lost decade, irrespective of the existence of nonperforming assets.

Also, I think that his repeated claim that fiscal measures alone cannot solve the problem is too simple. Japan’s experience tells us that the economy would sink if you withdraw fiscal measures too early. Japan’s economic growth turned to minus 2% in 1998 because policymakers, misunderstanding the trend of recovery, contracted public expenditure and raised taxes. It’s reminiscent of the recession of 1937, when FDR cut government spending prematurely. Fiscal policy can have some, be it large or small, effect of mitigating the tide of deflationary spiral.

I hope that US can extrapolate useful lessons from Japan’s performance in the 1990’s, given that we, Japanese people, have meaningful experience to boast.

However, what I would like to see is explained is how?

Anon above made a salient observation: “You know, I’ve always been disturbed at this assumption. There is no way to “clean up” these underperforming assets (”liabilities”?) except by having the taxpayer purchase them — no invester except the Treasury/Fed will touch them, or for that matter has the resources to purchase them anyway.”

Thoughts please

Moreover, the proposed fixes from governments involve revitalizing the problem source itself — socialization of the costs of speculation. If the neoliberal inconsistencies and moral hazards in current globalized state policies are not corrected, more extreme boom and bust cycles are inevitable. While the analysts may find comparisons to the causes of Japan’s lost decade of growth appropriate during the handling of this financial crisis, they may find that the results of the next crisis in the West will require comparisons to Argentina or Mongolia.

The degree of transparency and rationality of stated objectives in cleaning up this toxic mess is far more important to securing a real, sustainable recovery. Continued clever propaganda from the state and looting of the public treasury by corporations entails more of the worst for most of the human race. It seems that this result is not a lesson that requires relearning by the powerful, but is instead, a desired end game.

There are no alternatives to the US dollar. All currencies are getting killed. The US gov’t is now buying up all bonds and continues to suppress the gold market. Who cares how much money we spend?

For sure we’ll suppress any alternative currencies that look like they might appear on the international market. Why worry when you control all the levers?

Bailouts and Fiscal stimuli are not only mere short term pain killers, but the resultant deficit will make the situation worse for the future.