Mike,
You asked what I thought about Japan's efforts at re-inflating their economy by “printing money”. In short, I think it was a necessary step but another in a series that is likely to disappoint.
I think it was certainly proper for the government to change their focus from buying long-term government bonds to propping up lenders and businesses. The Japanese bond rates had no business being down as low as they were. One by one, the Japanese are being forced to quit meddling with markets and let them do their job. This will eventually have results, IMO.
As for printing money by flooding reserves into the banking system, I am dubious about its effectiveness. It is quite possible that these banks will not loan the money necessary to grow the economy, but rather invest it in paper assets. This, of course, is the weakness of monetary policy, especially in situations like Japan's. A better plan would have included a reversal of the sales tax increase of a few years ago.
I have felt for some time now that Japan was not the “gang that couldn't shoot straight” that many portray them to be. My feeling was that they had fallen into the trap of trying to run a more “humane” version of capitalism, something that many advocate, but never recognize as the source of the problem. The Japanese have tried to protect the old guard and are scared to stimulate the economy in fear that inflation would rob the savings from those who built Japan's economy. Perversely, the decline in asset prices seems to have raised this level of fear rather than prodding them to action.
My faith lies in the workings of markets and democracy. The markets or the people will one day force change. I believe that Japan has knowingly given up their position of the leader in Asia. Someone else will take their place and this painful transition will be complete. Japan will follow Asia into recovery, not lead it.
-Robert
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