boj gov: politicians not omnipotent

http://www.telegraph.co.uk/finance/economics/5212044/Bank-of-Japan-governor-says-US-must-tackle-household-debt.html

Bank of Japan governor says US must tackle household debt

Japan's central bank chief said on Thursday the United States must take "painful" steps to root out ills such as household debt to pull out of its downturn, warning that stimulus measures alone were not enough.

AFP
Last Updated: 8:35AM BST 24 Apr 2009

Speaking in New York ahead of annual World Bank and International Monetary Fund meetings in Washington, Bank of Japan governor Masaaki Shirakawa also cautioned not to mistake glimmers of economic hope for a real recovery.

Mr Shirakawa welcomed monetary easing and stimulus packages around the world, saying governments and central banks needed to convince the public that unpopular plans to salvage banks were for the greater good.

But he warned: "Policymakers are not omnipotent."

"I think the US economy needs to work out excesses, which include unsustainable financial leverage, household over-indebtedness and perhaps the over-extension of the financial industry," he told the Japan Society.

"This will be painful but inescapable. In view of Japan's decade-long experience, there are no palpable alternatives," he said.

Referring to the slump in the world's second largest economy after the crash of the speculative bubble in the early 1990s, he said: "Japan's economy did not resume sustainable recovery until it eliminated excess debt, excess capacity and excess labor."

Japan has again plunged into a biting recession as the global economic crisis saps worldwide demand for its cars, televisions and other signature exports - key drivers of the country's recovery earlier this decade.

Mr Shirakawa called for policymakers to be hard-nosed in assessing whether the economy was improving.

"In a severe economic crisis, policymakers have to be careful not to mistake a temporary rebound in the economy, or a false dawn I would say, for a genuine recovery."

But he also signaled that the Bank of Japan wanted eventually to lift rates. The central bank had been determined to raise Japan's rates - long among the world's lowest - until the global economic crisis hit.

Both Japan and the United States have since slashed rates to virtually zero in hopes of freeing up the flow of liquidity, the lifeblood of the financial system.

"There is no economic crisis that never ends," Mr Shirakawa said.