Nobody has wanted to heed the lesson of post bubble Japan until way too late – Published on naked capitalism, by blog owner, Nov. 7, 2012.
… Early in the crisis, the Japanese took the uncharacteristic step of telling American policy makers loudly that Japan had made a big mistake in how they handled theirs. They stressed that the most important step was cleaning up the banks. Then the IMF had the bad fortune to release a study of 124 banking crises on the heel of the Lehman and AIG meltdowns, which meant its findings were ignored, since the finance officialdom was too busy trying to deal with the wreckage to process new information. But it too came squarely down on the side of making banks take their medicine: … //
… Now in Europe, the salvaging of otherwise insolvent French and German banks isn’t being done via anything as straightforward as “blanket guarantees” but the result coming to look a lot like that, despite all the smoke and mirrors involved.
One of the major features of the current programs, which also emulate Japan but was not analyzed in IMF paper, which focused on fiscal operations, has been the use of extraordinary monetary measures, at first to stabilize asset values and then to encourage new borrowing by putting money on sale. That hasn’t worked at all in Japan, where overly cheap loans have not done much to spur new investment but have served to prop up inefficient borrowers who remain on life support. This was a concern early in the crisis: Japan’s super competitive exporters stood in sharp contrast with a very inefficient retail sector, and in some industries, mom and pop suppliers too. Japan prioritizes stability of employment over profit, so initially, this seemed like a sensible move at first.
But the super-cheap funding has become permanent as the economy has never attained liftoff and the cost of incurring a lot of pain is still perceived to be too high. Now John Plender of the Financial Times, citing some new research from JP Morgan, argues that zombification is an inevitable result of distorting the price of capital. Note that we’ve been on the path of distorting capital markets prices for a very long time. The Greenspan, later Bernanke put, has been perceived (correctly so far) of reducing the downside risk of speculation and the degree of support has grown over the last 25 years as the amount of intervention it takes to staunch crises has only kept growing.
From the Financial Times (hat tip Joe Costello): … //
… This means, sport fans, that a slowdown in Japan and China could produce much worse outcomes than conventional thinking believes is possible. It might be time to prepare for a rough ride.
Quantum economics, a type of monetary economic analysis QE, on en.wikipedia;
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