Newspaper article The Christian Science Monitor

Central Bankers Coming to the Rescue - Maybe ; from the US to Japan, Hopes for Averting Recession Rest with Interest-Rate Mechanics

Newspaper article The Christian Science Monitor

Central Bankers Coming to the Rescue - Maybe ; from the US to Japan, Hopes for Averting Recession Rest with Interest-Rate Mechanics

Article excerpt

They don't have the flair of a James Bond or Fox Mulder, but two of the world's central bankers will attempt to save the world this week from the perils of faltering economies and plunging stock- market prices.

Federal Reserve Chairman Alan Greenspan and his less-than-flashy fellow policymakers meet in Washington tomorrow, when they are expected to cut short-term interest rates by at least half a percentage point.

Half a world away, in a session at least as significant, the Bank of Japan's Policy Board under Governor Masaru Hayami meets today. Businesses, investors, and politicians are counting on the central bank trimming its key interbank lending rate to zero from 0.15 percent, the lowest in the world.

Even more noteworthy, the bank may also decide to print money to revive Japan's dormant economy. For years, the bank has been avoiding aggressive expansion of the money supply as a way to reinflate the economy.

In praise of printing money

"It's about time," says Milton Friedman, the Nobel prize-winning dean of monetary economists.

He urges Japan's central bank, in fact, to quit tinkering with interest rates altogether and concentrate on "printing money" by buying large amounts of existing Japanese government bonds - or even US dollars or debt.

The extra money feeding into individual bank accounts and swelling commercial bank reserves will, after nine months or so, stop Japan's current deflation and revive its economy and depressed stock market, asserts Mr. Friedman, now at the Hoover Institute in Palo Alto, Calif.

Other economists, however, argue that the creation of new money when interest rates are already so low is like "pushing on a string" - useless.

"It's a desperate measure," says William Cline, an economist at the Institute of International Finance, a Washington group representing the world's largest financial institutions. "But maybe it ought to be tried."

Such a move could even backfire, says Clyde Prestowitz of the Economic Strategy Institute in Washington. Japanese consumers, he says, could be "spooked by the knowledge their government is printing money" and spend less. …

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