2. It is important to remember that one of the issues at hand is the return on capital. Marx himself stressed it. We get nowhere in understanding the dyanmics of capital without trying to see inside the midns of capitalists. When a firm earns money the money can be kept as cash or plowed back into the firm. If that is so, the firm should (assuming reasonable investment) become morevaluable and its stock market valuation trend up. Firms also pay dividends. There is always the "cash stream" that comes from the stock as well as its market valuation. With a DOW at 3000, *dividend yields* would equal or exceed payment on bank deposits, including, I think, a fairly hefty "margin" for declines in earnings and dividends. This would be an extremely undervalued market, and have nothing factored in for firms' investing in themselves. I don't think we're in a position to see effective demand collapse to those levels. In any case I for one would love to throw money into a DOW at 3000.
3. Japanese debt at 1 trillion is tough, because the money has to be borrowed by the gov and then handed over to the banks in exchange for bad assets (nationalizing bad assets). If you say, "I need to borrow $1 trillion tomorrow," that's hard to do. But it doesn't have to do the whole thing all at once. Since the nature of the credit crunch is that banks have to constrict new lending in order to bring assets into line with deposit liabilities, it follows that part of the "tightness" in Japan is due to the high percentage of bad assets, say, 30-50%. But it does not follow that to "lessen the tightness" you have to wipe out all 50% all at once. If your personal finances are burdened by a $10,000 debt and s.o. pays off $2,000 for you, you've got 20% more liquidity to play with than before. With a national banking system, an easing of the crisis would begin to occur so soon as you put through the first tranche of debt nationalization (say, 10% of the bad 50%). A plan to nationalize $1 trillion of debt at the rate of $200b/yr would significantly improve Japan's situation and would not be unreasonable. The crisis doesn't have to be solved "overnight" to restore confidence. $200b/yr is less than $17b/month in borrowing, and is eminently within the capabilities of financial markets. If you add to that assumed debt 2-3% inflation and neat gimmicks borrowed from the US (in the 1980s insolvent US banks kept a higher than average spread between prime and discount, which the Fed tolerated, as a way of getting their books back in order), you've got a 5-year plan that will work at least on the asset side of the question.
4. More difficult is demand stimulus, at which I think the Japanese economy is pathetically poor. But I don't want to get into that.
-- Gregory P. Nowell Associate Professor Department of Political Science, Milne 100 State University of New York 135 Western Ave. Albany, New York 12222
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