[PEN-L:394] Re: Naive question on Japanese Debt

[Mathew Forstater <forstate@xxxxxxxx>]

Michael- from Randy. -Mat
> mat: you can forward this.
>
> Michael: this probably isn't a very efficient way to discuss this, and i
> am not quite sure what the question is. but let me try to answer.

> 1. someone recently told me a story of a financial official (i can't
> remember if it was a banker or a regulator) who had visited a mom and pop
> grocery store in denver to look over the books. her/his assessment was
> that the store was hopelessly bankrupt, and mom and pop didn't even know
> it. indeed, they had probably been bankrupt for years, and probably would
> remain so for years to come. so long as no one looked closely at the books
> and inventory (there had been stuff on the shelves for yrs, carried at
> purchase price but no longer of any value whatsoever), this store could
> remain in business for yrs to come. but any close analysis would cut off
> all bank credit and the store would close down. whaddyado?
>
> 2. another story. a regulator at the occ assured me that he could take any
> bank, no matter how insolvent, and cook the books to keep it open for 5
> years. and hey, things might turn around.
>
> that is essentially what the rfc did to save half the banks. give them
> time and if the economy improves the banks will recover. the rtc chose
> another path--saddle taxpayers.
>
> japan has given the time, but has done nothing to improve the economy.
>
>
> i don't quite understand the purpose of the head tax on banks. the govt
> doesn't need revenue. it just needs to spend its way out of recession.
> many of the assets on bank books will recover. since bad loans may well be
> $1 trillion, that may not be enuf. japan can follow the rfc path: govt
> injects equity, gives them 20, 30, 40 yrs to retire it.
>
> L. Randall Wray
> Senior Scholar
> Jerome Levy Economics Institute
> Bard College
> Annandale on Hudson, NY 12504
> email: wray@xxxxxxxx
> fax 914-7581149
> phone 914-758-7730

michael perelman wrote:

Yes, Randy is correct, but, suppose that the crisis in Thailand had not been
seen as serious.  Japan might have cruised along for a year or more perhaps
without the public noticing any debt "crisis."

Suppose that instead of a debt crisis, the government had levied a heavy tax on
banks and the zaibatsu, then spent the money on public works.  It would have
been a pure transfer, yes, as Randy notes with both sides of the balance sheets
affected.  So, let the government use the money to bury in bottles.

So I still want to continue with my naive question.