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Strategies & Market Trends : Bob Brinker: Market Savant & Radio Host -- Ignore unavailable to you. Want to Upgrade?

To: MrGreenJeans who wrote (5630)	6/25/1998 9:14:00 PM
From: MrGreenJeans	Respond to of 42834

Japan-A View from MIT Thursday June 25, 8:27 pm Eastern Time Japan risks a "Great Depression" --MIT's Dornbusch CHATHAM, Mass., June 25 (Reuters) -- Japan may be heading for a ''Great Depression'' unless it implements an aggressive plan to clean up its banking system and spur growth, Massachusetts Institute of Technology (MIT) economics professor Rudiger Dornbusch said on Thursday. ''It would the Great Depression for Japan,'' Dornbusch told Reuters when asked about Japan's outlook if the world's second-largest economy failed to implement the growth measures it has announced to pull itself out of a recession. ''Japan needs to adopt aggressive deregulation, aggressive tax measures to boost its GDP (Gross Domestic Product), to get demand going, to ease consumer credit. I did not say to ease interest rates but to ease credit,'' said Dornbusch, a speaker at the Federal Reserve Bank of Boston's conference on business cycles. ''Japan needs to clean up its banking system, take over the weakest banks, work out balance sheets,'' he added. The yen came under renewed pressure on Thursday amid rising market doubts about Japan's resolve to deal with its problems. Dornbusch told conference participants that, whenever financial crises arise, the cause is ''bad lending.'' The MIT professor identified ''mismatched maturities -- short-term borrowing to finance long-term investments,'' and ''mismatched denominations -- assuming that foreign exchange rates are fixed which is not a reasonable assumption,'' as the main reasons for the lending crisis in Asia. Dornbusch blamed global investors for poor ''value-at-risk'' analysis when they lent aggressively to emerging Asian economies with inadequate government regulations. He also cited untenable government guarantees of massive private-sector borrowing as a cause for the Asian crisis. Maurice Obstfeld, economics professor at University of California-Berkeley, commented that attempts to fix foreign exchange rates worsened the problem in an environment of fast-moving global capital flows. ''When market sentiment turns against the exchange rate peg, the government is effectively forced to assume the short foreign-currency positions in some way -- or to allow a cascade of domestic bankruptcies,'' Obstfeld said. ''Since the government has used its foreign exchange reserves and cannot borrow in world credit markets, the national default becomes imminent.''