Monday, November 29, 2010

Japan's Lost Decade Explained

Japanese economist from Nomura Securities explains Japan's "lost decade". He explains how Japan reacted to their bubble burst and financial crisis. It created a balance sheet recession that he describes very well. He points out that fiscal policy stimulus was attempted but it was not enough to fix the problems. Interest rates fell to zero but it did not stimulate spending because there was more interest in paying down debt (which is savings) than in increasing private borrowing and spending. His major point is that government borrowing must compensate for the lack of private borrowing and spending. This increased deficits in Japan and caused the government to withdraw the needed fiscal stimulus.

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