Re: [Pen-l] Japan's solution to its lost decade

[Marty Hart-Landsberg <marty@xxxxxxxxxx>]

I didn’t understand the logic of the part of the article (quoted below), which seems to say that banks refused to lend no matter how much money or credit support the bank of japan gave them because the banks were concerned about the credit worthiness of the borrowers.  But then the article asserts that when regulators audited the banks and cleared up their balance sheets they started lending.  The first part suggests that the problem was with the borrowers and the second part suggests that the problem was with the lenders themselves.  Am I missing something?  And see after the quote for another look at Japan.
 

Marty

 
 

Japanese banks simply refused to lend in an environment where
borrowers could suddenly go bankrupt, saddling lenders with huge,
unforeseen losses. The Bank of Japan tried even more extreme measures,
like using its powers to create money to essentially stuff cash into
the nation's commercial banks in hopes they would start lending again.

Exasperated central bankers found that commercial banks just let the
money pile up instead of lending it out.

Economists say the United States faces a similar situation, after the
sudden collapse in September of Lehman Brothers created fears of
additional failures. Economists also fault Washington for its
inconsistency in dealing with the financial crisis, leaving the
impression that it does not have a clear strategy for dealing with
ailing lenders.

In Japan's case, economists and former bankers say, credit began to
flow freely again only after 2003, when regulators adopted a tough

new policy of auditing banks and
forcing weaker ones to raise new capital or accept a government
takeover. Economists said the audits finally removed paralysis in
credit markets by convincing bankers and investors that sudden
failures were no longer a risk, and that the true extent of problems
at banks and other companies was finally being revealed.

Here is another take, from Hamish McRae,  Can we avoid the years of stagnation suffered by Japan?, The Independent, October 29, 2008:

"The aftermath of that bubble has been a millstone round the neck of the Japanese economy. True it is still the second largest in the world and true, Tokyo is still the sprawling, clean, efficient, safe and shiny city it was 20 years ago. The great Japanese companies such as Toyota, Sony and Honda still prosper. But the bottom line is that there has been virtually no overall increase in Japanese living standards for 20 years and that inequality has risen sharply.

You don't see it in central Tokyo, where the smart salary workers of the giant companies commute every day, but I am told by Japanese friends that there is real hidden poverty in a way that they find shocking. Homelessness has increased, one third of jobs are part-time, and the thing they found most shocking is that quite a lot of people have no health insurance because they cannot pay the low social security charges to maintain their cover."

Anthony D'Costa wrote:

I too read this and I thought all those years of NYT bashing of Japan--that Japan did not support its consumers, that credit was tight, etc. etc.  Now to see this praise for Japan for its austerity measures seems rather illiberal (NYT style).

As for accuracy I think that's pretty much the picture.  In any case Japan has high savings ratio.  It's that damned export success that created the financial bubble combined with the "irrational exuberance" that got it into trouble.  The Japan postal system does sit on 2 trillion dollars (that's right) on personal savings.

Anthony

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