>Despite the fact that the government has lowered interest rates to >ridiculous levels, bank lending actually fell in Japan in November. > >To interpret which evidence it is not sufficent to be a radical >Keynesian. One must be marxist. > >Chris Burford > >London
very interesting article in nyt a week or two ago. japanese banks presently have massive holding in govt bonds. if govt were to attempt to overcome so called liquidity trap by radical inflationary monetary policy (as left of center krugman recommends) or big new debt-financed expenditures, banks may be forced to sell off their thereby devalued bonds. This would could further weaken the banks since at present the return on bonds are helping to keep the banks solvent. In short, it seems that the fragile banks' dependence on their holdings of govt bonds puts limits or would render counterproductive a radical keynesian solution to what is characterized as a liquidity trap. Rakesh
