Friday, May 21, 2010

More Misguided Policies

From Bloomberg

The Bank of Japan said it will provide one-year loans to banks to encourage lending and defeat deflation, and raised its assessment of the export-led recovery.

That is the first paragraph and that is all you really need to read before you should start laughing (or crying).

The Bank of Japan are going to make loans to banks and that is supposed to help Japan? HAHAHA. First of all, if a bank is taking a loan from the BOJ (central bank of Japan) that is simply debt. Hypothetically it could give some room to have a few more loans but the multiplier impact will be very very close to zero.

Secondly, and this is what I really thought was absurd, these are 1 year loans!!!!! Even if this was a magical elixir, which it is not, how in the world does the BOJ expect Japanese banks to lend for GDP creating projects with a year time from? Banks basically don't lend money to anyone for less than a year and yet this money which you are supposed to lend out to create growth and escape deflation has to be paid back in a year.

Add the whole thing to the absurd pile.

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