McIcarus understands his predicament?

Very good. The arguments presented hold some of the rational for my continued conviction that deflation is the greater risk for the U.S. and other industrialized countries...a position that me and my colleagues have been debating at great length.

(Credit to Lisa O'Carrol)
Is Ireland heading for a Japanese lost decade?There are many similarities between the recessions in Japan and Ireland but can the Irish government learn from the Japanese and avoid a lost decade? Is setting up a new 'clean' bank the answer?

Can Ireland help its current fiscal position with the creation of a new bank? Photograph: Carl De Souza/AFP
I'm a student of economic history and was recently re-reading Richard Koo, chief economist at Nomura Research Institute's The Holy Grail of Macroeconomics, a study of Japan's lost decade, I was struck by the similarities of Japan to Ireland. Of course the economies are different. Of course Japan had its own currency. Of course Ireland's fiscal and political problems would be there regardless of Ireland's banking disaster.

But still, we have the banking crisis, the asset price collapse, the vast increases in numbers of non-performing loans, the deflation, the deleveraging, the balance sheet problems in banks, businesses, and households, the rush by the private sector to pay down debt, the cosy institutional arrangements between bankers and centres of power, the repeated failed attempts at recapitalisation, and finally, the deep restructuring of the Japanese and Irish banking systems.

There are more similarities than differences in this story.

One of the crucial elements in the balance-sheet recession story is the injection of fresh capital into the system, either as a fiscal stimulus or as an increase in credit.

Ireland can't help its current fiscal position, but a new bank, financed from abroad, and designed primarily to get credit flowing to SMEs and agricultural concerns as well as other strategic priorities, might act as the injection of capital the economy needs.