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To: Sarmad Y. Hermiz who wrote (40455)2/16/1999 6:45:00 PM
From: GST  Read Replies (2) of 164684
 
Sarmad--I woke up with the headache--Japan is in very, very bad shape, and nothing they have done has worked and it is a wonder that they have not done a lot more and a lot sooner. They are being advised by various economists to monetize their debt. Think of it this way, you cannot get Japanese people to spend a dime cause they are very frightened about their future. So the economy slips into recession. Banks can't lend cause they have a trillion dollars in bad debts on their books. And industry has excess capacity. So the gov. is borrowing a poop load of yen to spend on public works. Now, where does the money come from? Second, they are going to use a poop load of money to recapitalize their banks. Where is the money going to come from? They also have a poop load of unfunded pension liabilities -- where is the money going to come from? They can a.) raise the money in the market -- or b.) monetize the debt. They have a tug of war over those alternatives inside the country. Imagine that the US government wanted to get rid of $1 trillion of government debt, and somebody said, well lets just print up an extra trillion and be done with it (printing is a euphemism cause it is done through the banks). Would you go along with that? Why pay it back with taxes etc. when you can just 'make the debt go away'? Hell, why not infinitely increase the debt and make it go away at the same time? The alternative is to cash in US bonds -- and guess what -- that is what is happening.
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