Hamish McRae is one of the few economic commentators to have come out of this crisis in credit. His column today on how to avoid the stagnation that has gripped the Japanese economy for the past twenty years is well worth reading. Here’s the key section but do read the whole piece:
“During the early 1990s the country escaped recession, unlike for example the UK, but the economy was flat and when the recession did come, in 1997, it was a biggie. Then until a couple of years ago it was back to stagnation. So while cheap money will help, and some increase in government borrowing is inevitable, they will not on their own fix things. Wasting money on ill-conceived public spending (which Japan did) is damaging in the medium-term.
A further mistake of the Japanese authorities was that they tried to prop up depreciating asset prices, including the stock market.
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