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Strategies & Market Trends : Asia Forum
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To: Joseph Beltran who wrote (7145)10/16/1998 9:59:00 AM
From: Henry Volquardsen   of 9980
 
Joseph,

The US an Japanese public respond very differently to economic stimulus. Japan is a nation of savers, low interest rates have dramaticly cut their income and put them into a shell. Alan Abelson's column in last weeks Barron's had some very interesting comments from Marc Faber on the subject. Americans on the other hand are consumers by nature. It is much easier to prompt them into buying.

But there is a more important difference between the US and Japan which bears directly on the credit conditions. The US banking system has been much better at recognizing bad loans, taking the loss and moving on. So once they take the hit they can clean it out and move on. This tends to shorten the duration of a credit crunch. The Japanese however have been terrible at recognizing problems in the banking system. The bad loans sit on their balance sheet like a cancer and prevent them from moving on. In this environment cutting rates is merely pushing on a string.

Henry
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