The Window for Idiocy is open. Then again, it always is. No matter how how many times a piss poor policy has been tried and failed, nutcases want to try it bigger and bigger, expecting different results.

Proposals to “fix” what ails Japan provide the perfect example. Please consider Japan Urged to ‘Seize This Moment’ or Face Another Lost Decade.

Japan begins forging a road map for recovery from its worst postwar disaster next month, a process that may determine whether it sheds the legacy of the 1980s bubble or has a third “lost decade” of stagnation and deflation.

Key to the result: whether the nation’s companies end an aversion to borrowing, taking on debt to propel domestic investment and wage gains, and whether policy makers embrace a stimulus financed by Bank of Japan money creation, analysts said.

“The only time you can get things done is in moments of genuine crisis and catastrophes — there’s a small opportunity to do an extraordinary amount,” Malcolm Gladwell, author of “The Tipping Point,” who writes for New Yorker magazine, said in an interview with Bloomberg Television. “Japan — a country whose politics were in deadlock and sluggish for many, many years — I hope they can seize this moment and accomplish a lot.”

“The window is not likely to be open for more than a few months” to set a “bold” course of action that changes the economy’s direction, said Robert Feldman, head of Japan economic research at Morgan Stanley in Tokyo. Feldman’s bold scenario envisages 40 trillion yen of total new spending, with no tax increases and 50 percent financing by the BOJ.

Because Japan is already in deflation, the risk of monetizing the debt is low, according to some analysts. Consumer prices, excluding fresh food, haven’t sustained a 1 percent increase in sequential years since the early 1990s. BOJ board members identify stable prices as an inflation rate of around 1 percent.

Borrowing as a percentage of assets slid to an average of 43.7 percent last decade from 69 percent in the 1990s as companies de-leveraged. The figure stood at 42 percent at the end of March 2010, the most recent BOJ data available. Willingness to borrow again may help propel growth, said Richard Koo at the Nomura Research Institute Ltd. in Tokyo.

“There’s been a debt-rejection syndrome, and we needed a shock to get out of it — this may actually do it,” said Koo, chief economist at the research arm of Japan’s biggest brokerage. “Companies will have to borrow money because they’ve got to get themselves back in production.”

“The instincts of the DPJ are on the cautious side; however, the DPJ is also practical, and realizes that it must support the economy and economic revival,” said Feldman, who has analyzed Japan’s economy since the 1980s bubble years. “After an initial period of caution, I expect a swing toward the bold scenario.”

“The window is not likely to be open for more than a few months” says Robert Feldman. Ironically, his proposal is clear proof the window for idiotic ideas is always open.

For 20 years Japan was on a fool’s mission to produce stimulus via Keynesian and Monetarist stimulus. The only thing those policies ever accomplished was to increase nation debt. Yet, Feldman wants to try again, hoping to spur inflation. When it does come, it will come in spades.

Analysts says that “Because Japan is already in deflation, the risk of monetizing the debt is low”.

That is as silly as believing that home prices always go up.

The situation in Japan is so dire that if interest rates were to rise to a mere 3%, interest on the national debt would consume all revenues. That sure seems like a lot of risk to me.

At some point debt matters. I do not know when it matters, but to believe otherwise as Richard Koo, Robert Feldman, and Malcolm Gladwell proves that they have not learned a thing from history. It’s really quite pathetic.

Mike “Mish” Shedlock
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