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Bill Bonner: Printing Money to Save the World

We love Japan. Yes. Count on the Japanese to do things that are both great and horrible at the same time. To put the following news item in perspective, the Japanese are in even worse straits than Americans, at least in some ways. Their government debt equals 220% of GDP. Savings rates are falling to zero. The annual government budget dwarfs tax receipts. And the Japanese face a huge bill for rebuilding after the earthquake, the most expensive natural catastrophe in history. Where are they going to get the money? Well, there are two possibilities. The first is bad for Japan. The second is bad for the US. Like the US, Japan can print its way out of the problem. Some Japanese officials are all for it. Others aren’t. Bloomberg has the report: Bank of Japan Governor Masaaki Shirakawa is under fire for refusing to consider 1930s-style purchases of government bonds to fund reconstruction from the nation’s record earthquake. Shirakawa repeatedly attempted to quash direct buying of government debt, a step allowed in extraordinary circumstances with the permission of the Diet, in appearances before lawmakers this week. The policy would undermine confidence in the yen and provoke a surge in consumer prices, he said at parliamentary fiscal and finance committee hearings. “If this isn’t a special situation, what is?” Kozo Yamamoto, a Diet member with the opposition Liberal Democratic Party, said in an interview this week. Yamamoto advocated a 20 trillion yen ($247 billion) reconstruction program funded by BOJ debt purchases. A group of ruling-party lawmakers submitted a similar proposal to Finance Minister Yoshihiko Noda on March 18, according to a web log posting by DPJ member Yoichi Kaneko. The debate parallels discussions last year in the US and Europe, where the Federal Reserve and European Central Bank adopted bond-buying programs. The report mentions how Japan paid for its military build-up in the ’30s. It printed money! Eventually this led to runaway inflation…and economic as well as military disaster.

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