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Strategies & Market Trends : Asia Forum

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To: Rational who wrote (223)	12/29/1997 12:51:00 AM
From: Shoe	Read Replies (1) of 9980

Sankar, Japan's interest rates are so low already that monetary policy is of limited utility. The prescription for a liquidity trap is fiscal stimulus, and it is particularly appropriate where excess saving would otherwise keep demand too depressed for the economy to recover to full employment equilibrium. "Rational expectations" theorists notwithstanding, experience shows that in large enough doses fiscal stimulus can have substantial impact on an economy with considerable slack (as in the U.S. in the 1980s), and for Japan a 3.5% unemployment rate means that slack exists. Japan's tax increase this year was macroeconomic folly, and with all of Asia on the brink it is not the time to be timid with tax cuts or public works spending, IMHO. If Japan does not serve as the regional locomotive, it will not be primarily Americans who suffer! -- Shoe

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