Japanese banking system 'about to collapse'

[Steve Schear]

[Now this could be very interesting...]

http://www.iol.co.za/general/news/newsprint.php?art_id=ct20020105195512751J1526233


Japanese banking system 'about to collapse'


TOKYO: Japan's financial system is headed toward collapse and will require
a government bailout of one trillion dollars, a US think tank said.

"Japan appears poised to follow the passive route of outright default,"
resident scholar John H. Makin wrote in the monthly Economic Outlook report
put out by the American Enterprise Institute for Public Policy Research on
Wednesday.

"The negative net worth of the Japanese banking system is somewhere above
the yen-equivalent of one trillion dollars," Makin wrote. "When the banking
system collapses... the Bank of Japan will need to inject at least one
trillion into the banks to protect depositors from losses."

He said such a procedure would need to be financed by the Japanese
government, resulting in total public debt jumping by 15 percent, and
causing a surge in liquidity that would cause Japan's currency and bonds to
collapse.

'It amounts to beating harder a dead horse'"Japan's deflation and debt
crisis now constitute systemic risk to the global economy," he wrote.

The report harshly criticises Japan for failing to stop rampant deflation,
which increases the burden of paying off debts.

"Efforts by the Bank of Japan to boost economic activity and to reflate by
increasing reserves in the banking system and cutting short-term interest
rates virtually to zero amount to beating harder a dead horse," Makin wrote.

"The dead horse is the Japanese banking system, which by virtue of its
insolvency is unable to act as a financial intermediary borrowing short
from the central bank and lending to Japan's private sector."

Makin also criticised moves to postpone past next March the government's
plan to cap its guarantee on bank deposits to 10 million yen (about
R900 000), saying; "that step will only delay the outright collapse of the
banking system." - Sapa-AFP



Published on the Web by IOL on 2002-01-05 19:55:26
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