The Japanese have have not sincerely tried to print, c’mon. Japan was massively levered and they never printed anything on the scale of the delevering. Instead they engaged in 20 years of Keynesian nonsense, with the government levering up, and are back where they started, only far older and with the debt on the public balance sheet.

You went to the U. of Chicago, you should know the answer! A real Friedmanite solution in Japan would have been to let the private sector delever but *do not* lever up the public sector with senseless and *unproductive* Keynesian spending. Instead, stand back and if deflation starts to go too far, just provide raw money printing to the people as needed to avoid letting deflation get out of control.

The private sector wants to operate with less leverage these days. This would be steeply deflationary because money multipliers would shrink. The solution must be to increase the base money supply in the least distortionary way possible. Rather than have the government borrow and spend on unproductive things, it should just get printed cash into the hands of its citizens. They will be able to pay off debt and the financial sector will heal naturally.

Japan has solved nothing in 20(!!!!) years because there just wasn’t a way to pay back the huge debt. It was bad debt, unservicable in relation to the money supply. The debt needed to be destroyed one of two ways: Either
(1) Stand back and let everyone go bankrupt in a deflationary collapse. This is the classical solution. You could then reorganize and not have wasted 20 years. This is brief, terrible and politically untenable.
-or-
(2) Print new base money immediately. This will seemingly be inflationary but in reality you are only pulling the money supply along to keep up with the asset inflation that has *already* occurred. Some debt may be destroyed by inflation but it is much less disruptive if it is at low levels.

Bill Gross pushed this very well in March 2009.
http://www.pimco.com/LeftNav/Featured+Ma rket+Commentary/IO/2009/Investment+Outlo ok+Bill+Gross+March+2009+Hairy+Lips+Sink +Ships.htm

Gross said in order to deal with the debt load, we need a “return to nominal GDP growth levels of 5-6%, the majority of which might actually come in the form of higher prices as opposed to increased production. This Faustian bargain would be acceptable if only to stabilize what now appears to be an even more dangerous deflationary debt liquidation.”

And a note to mere mortals – once you have the van moving, keep going with it and don’t run back in front of the train.

Rolfe – are you sure Superman and the weight lifter aren’t the same guy?