The Lessons of Japan – Dr. Shawn Ritenour

Japan is often pointed to as the quintessential recent example of the disastrous effects of deflation. Paul Krugman has been saying since the 1990s that Japan is caught in a liquidity trap, and the only solution is to manufacture inflationary expectations by creating money in earnest until the Japanese are convinced that prices are going up. Then they will stop holding money and start spending again, which is seen as the fount of economic rejuvenation. It is asserted that Japan’s once vibrant culture has been transformed into one of pessimistic risk aversion, due to a prolonged deflationary spiral following its boom of the 1980s.

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