Economic Collapse: the Japanese solution

Economic Collapse: the Japanese solution

It would serve America well not to follow the blundering steps of the Japanese government in trying to resolve the problems of what was once the Land of the Rising Sun.

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The Japanese government has prolonged its downturn for an additional decade by not allowing bankrupt banks and corporations to liquidate. Zombie banks and corporations existed for decades without writing off the billions of bad debts. They hoarded all of the money provided by the government. The Japanese tried every trick in the Keynesian playbook. Zero interest rates, public works projects tax rebates and tax decreases. The government built thousands of bridges and roads, driving up government debt to enormous levels. Between 1990 and 2000, the Japanese government instituted 10 fiscal stimulus programs totaling $1 trillion. None of these programs worked.


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The remaining mega-banks that have caused this crisis need to be put out of our misery. The shareholders and bondholders of Citigroup, Bank of America, Goldman Sachs, Morgan Stanley and any other insolvent banks need to be wiped out. The bad banks should go out of business. The prudent banks that did not take financial system destroying risks should be allowed to succeed based on their merits. Failed companies with failed strategies must go bankrupt. If the American auto industry is propped up by taxpayer money, the capitalist process of rationalizing manufacturing capacity to final demand will never happen. Allowing companies to fail brings about restructuring and the remaining healthy companies buy the good assets.

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Only infrastructure projects that benefit the citizens of the country should be undertaken. These would include water pipe replacement, electrical grid upgrades and repairing structurally deficient bridges. If the money is spent on worthless make work projects, good investments will be crowded out. Tax rebate checks are just a redistribution of wealth from future generations to the spend thrift generation of today. A tax decrease today that is borrowed is a tax increase on our children. They will not stimulate spending.

versus

Canada has done more than survive this financial crisis. The country is positively thriving in it. Canadian banks are well capitalized and poised to take advantage of opportunities that American and European banks cannot seize. The Toronto Dominion Bank, for example, was the 15th-largest bank in North America one year ago. Now it is the fifth-largest. It hasn't grown in size; the others have all shrunk.