ven the banks and investors know that the rate, though inviting, is not appropriate for long-term growth.Weakness in the stock-market, massive bad debt, and slowing demand for Japanese exports led Economic Minister Taro Aso to say that a recession is "possible" in the months ahead. He then asked the government to consider spending even more in an attempt to boost growth. This seems an obvious tactic, and one that cannot compete with ever growing bank debt. Again, this package holds promise if implemented with a decrease in debt. Last week, the Central Bank governor, Masaru Hayami, said growth has come to a standstill because of slowing exports (Reuters, April 10). This is in major part because of the weakness in the stockmarket, which stems from reaction to the lowering of the prime interest rates. It seems no economic entity, from investors to depositors to the banks themselves see positive results coming from giving free money to the major banks.The Japanese economy needs overhauls, and the Economic Ministry has acknowleged this by taking steps towards robust recovery packages. But why would they couple these reforms with a zero percent interest rate. They see this a way to rebuild firms by allowing those firms to invest in new machinery and new industries. They believe firms will be able to jump into these new industries without fears of lack of funding. Though an important facet of recovery, these reasons pale in importance to simply reducing bad debt. All the new industries in the world cannot make up for bad debt. Even through the 1990's, with perhaps the most important new economy - software - being heavily invested in, Japan was unable to maintain growth. The same will happen now if banks are not pushed into repaying their bad debt. There is no substitute....
