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Isn't that what the Japanese did? Lowered rates to near zero? Then people took the money and invested it, just not into the Japanese market?I'm probably showing my lack of financial knowledge but there are several similarities between now and Japan's problems. Obviously they didn't have CDOs,etc. and I know bankruptcy laws here and there are vastly different but I'm not sure the results will end up being much different.http://en.wikipedia.org/wiki/Japanese_asset_price_bubbleWith so much money readily available for investment, speculation was inevitable, particularly in the Tokyo Stock Exchange and the real estate market. The Nikkei stock index hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. The rates for housing, stocks, and bonds rose so much that at one point the government issued 100-year bonds. Additionally, banks granted increasingly risky loans......Meanwhile, the extremely low interest rate offered for deposits, such as 0.1%, meant that ordinary Japanese savers were just as inclined to put their money under their beds as they were to put it in savings accounts. Correcting the credit problem became even more difficult as the government began to subsidize failing banks and businesses, creating many so-called "zombie businesses". Eventually a carry trade developed in which money was borrowed from Japan, invested for returns elsewhere and then the Japanese were paid back, with a nice profit for the trader.Rich
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