[OPE-L:104] [OPE-L:340] Re: RE: Re: a slaughtering of capital values

Allin Cottrell (cottrell@ricardo.ecn.wfu.edu)
Tue, 17 Nov 1998 12:55:57 -0500 (EST)

On Tue, 17 Nov 1998 A.B.Trigg@open.ac.uk wrote:

> Isn't this the problem with Japan, that there needs to be a
> slaughtering of capital in order for the crisis there to be
> overcome? Unless some banks in particular are allowed to go
> bankrupt then there is no way out.

Like Jerry, I'm not clear on the mechanism whereby bankruptcies
are supposed to be helpful.

> A Keynesian analysis would seem particularly irrelevant
> here...

Paul Krugman (http://web.mit.edu/krugman/www/) has an
interesting analysis of Japan: he reckons it's in a "classic"
Keynesian liquidity trap. Nominal interest rates are just about
zero, so they can't be pushed any lower, yet investment is not
sufficient to absorb full-employment saving. He reckons that
Japan needs inflation (to generate a negative real interest
rate), and is suffering from its "success" in lowering inflation
to around zero.

Allin Cottrell.