Stephen, that is where Japan is wrong, Japan has more trading with the rim then with the US, it is their own self interest to get the rim back moving or this trade will be gone with a resulting further contraction in their economy. With their interbanks interest rates at .5%, they have nowhere to go monetarily. Fiscal stimulus unless it is accompanied by increased spending of these funds, will not restart their economy. They will end up in a situation where their national (internal, not external debt) debt will choke them, since contraction will result in decreasing tax receipts. One way out is to use the enormous amount of (over) savings in their economy and restart the growth engine. Few month back, I proposed few additional steps (some of which the Japanese will never take, like opening their gate to emigrants from overpopulated developing countries), but the most critical step (which Rubin has not mentioned in his presentation to Wall Street) is a bolus of increase in final demand (even if created artificially for just a period of six month or so) to restart the economy and thus increase the confidence of the citizenry in their system.
Zeev |
