This post was off-base, in a number of respects.
First, Posner wrote: "Japan spent the 1990s unsuccessfully trying to recover from a collapse of the Japanese banking industry... despite aggressive monetary and fiscal policies."
Except the Japanese central bank has done little more than twiddle its thumbs for the last two decades... Yes, they did a grand total of $300 billion in Quantitative easing, then when things got slightly better, they rolled it all back. More deflation and recession promptly ensued. This is what Posner termed "aggressive monetary policy" -- which renders the term meaningless. (And, despite the large deficits, "aggressive fiscal policy" is also quite contentious.)
Posner gets into trouble again on sentence #2 when he writes: "As a result of those policies, Japanese national debt soared..." But, of course, with true QE, the BoJ would have just retired massive amounts of debt for good.
The obvious way out for Japan is simply to monetize large swaths of its debt. This isn't just killing two birds w/ one stone, it'd be more like killing a whole flock of geese with one stone. Let's think about it, printing money would 1) increase inflation expectations, thus reducing the real interest rate, 2) weaken the yen, 3) improve financial companies balance sheets, who hold assets in $ but liabilities in yen, 4) improve japan's net exports, 5) reduce the amount of future debt which Japan needs to repay.
Why it does not is that peculiar madness, and not reason, that rules the minds of conservative men.
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