Associated Press: Japan’s central bank injected a record 7 trillion yen ($85.5 billion) into money markets and the Tokyo stock market nosedived Monday on the first business day since an earthquake and tsunami devastated the country’s northeast and raised dire worries about the economy . . . By flooding the banking system with cash, it [The Bank of Japan] hopes banks will continue lending money and meet the likely surge in demand for post-earthquake funds . . . Japan’s economy has been ailing for 20 years, barely managing to eke out weak growth between slowdowns, saddled by a massive public debt that, at 200 percent of gross domestic product, is the biggest among industrialized nations.
More money does not mean more resources. More money means bidding up the prices of resources. The money supply does not need to be changed for an economy to function properly. Prices are flexible if they are not messed with by government intervention. More debt for a super-indebted nation should obviously be a bad idea. At the end of the article is another economist who thinks this disaster can be good for the Japanese economy. Broken windows? I think broken brains can explain this persistent fallacy. Suffering from the 2011 Sendai earthquake and tsunami, the victims of this natural disaster will have to suffer from a man-made disaster of inflation. That makes this economically misguided reasoning more saddening.