U.S. Hears Echo of Japan’s Woes
“This month, Japan’s central bank pushed its benchmark rate back down to zero. However, central bankers here argue that it is not enough just to loosen monetary policy when a lack of borrowers and new investment means there is no demand for money to start with. And this points to another feature of Japan’s experience that may already be visible in the United States: the paradox of a stagnant economy that is awash in cash.
This occurs when companies and individuals stop spending and banks stop lending for fear that anemic growth and rising bankruptcies will result in defaults. This is particularly apparent in regional economies outside Tokyo, which remains relatively vibrant. “
There is no easy answer.