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There are signs, in fact, that the Central Bank of Japan may be test-driving Krugman’s rather radical plan. "Of course," says Baumohl, "they'd never admit it -– a central bank’s job is to prevent inflation –- but I suspect they’ve started down that path.
"When you’re this deep into a depression, a lot of it becomes psychological and self-fulfilling," adds Baumohl. "A drastic therapy like actually creating inflation may be just the thing."
The upside to inflation therapy is that it’s akin to psychoanalysis. Once you have dispelled the root neuroses -- and got people shopping again and banks lending again -- the recovery would in theory be self-sustaining. But the current prescription of massive government spending may be more like electroshock treatment. "Give a body a jolt of current when it’s lying on the table," says Baumohl, "and it’ll leap into the air every time. That’s what happened with Thursday’s GDP numbers. But more often than not, it’s still dead."
With the rest of Asia in the ward down the hall, on the mend but still feeding through a straw, it may be time for Tokyo to try something else. Otherwise Prime Minister Obuchi's "light at the end of the tunnel" won't be the way out. It'll be just another oncoming train.