I recall that at the time of the S&L bailout, several economists said that the
damage to the American economy had already been done, in terms of depressed
economic activity in the areas most affected, but the bailout itself would not
have much economic impact. That observation seems in line with Smitka's analysis
in the US. What about Japan? After all, the Japanese government can print money
by selling bonds to the BOJ. The risk of that is to cause inflation but that
hardly seems a problem in Japan today. So it would look like deficit financing
(and would presumably have the positive Keynesian effect on the economy of any
deficit financing) but would not really incur any long-run costs that matter
much.
I don't propose this with much confidence--I am just asking if it makes sense.
To me it looks as if the effect of the bad loan crisis has mostly already been
felt (assuming of course that a panic can be avoided). By the way, the piece in
WSJ [Wall St. Journal? -- moderator] last week on how Japan should take a lesson
from the US S&L bailout was quite good, I think, but I forget if it made the
argument above or not.