As I mentioned in my post, “TALF: A bailout if one reads the fine print” the TALF is not a program ONLY for U.S. institutions. It is a vehicle for re-starting the U.S. asset-backed securities credit markets. In fact, the first recipient of TALF money may be Nissan Motors, a Japanese company (Hat tip Marc):

Overnight, the Japanese government released figures for Q4 2008 GDP that pointed to a depression-like fall in the Japanese economy. GDP contracted 3.3% from Q3, or 12.7% using the U.S. convention of annualizing those numbers. This is the largest such quarterly contraction in Japan since 1974. While a very poor number was expected, this number was even worse than forecast.

The statistics coming out of Japan have been truly awful of late. In my last post, you saw a small video connecting reduced spending in the U.S. to Japan. However, I need to be more explicit about how things are unraveling in Japan. The industrial production number that was released this past Friday was a wake-up call that Depression has arrived, at least in Japan. Industrial production fell a stunning 9.6%, the most since statistics began in 1953. This is a figure that translates into a GDP of 10% — and this in the world’s second largest economy.

News in Japan has been particularly grim. Industrial production has plummeted, exports are in free fall and banks are simply not lending as excess reserves pile up. As a result, Japanese share prices threaten to revisit lows that bring the country back to 1981 prices. Japan is in Depression. The question is what to do about it. Rates are already near zero. The answer that I believe will be found by Japanese policy makers is what is known in economic policy circles as quantitative easing, a hifalutin way of saying printing money.

Federal Reserve Chairman Ben Bernanke gave a speech at the London School of Economics today in which he outlined the measures the Federal Reserve was prepared to take in order to deal with the financial crisis. Of particular note, Bernanke indicated that the U.S. central bank would keep interest rates low and that it would buy mortgage-backed assets in order to increase its direct control over the interest rates borrowers actually see.

Zero percent interest rates mean a weak currency. The U.S. Dollar is getting hammered. See these charts from the last day and a half of trading. Even the British Pound is cleaning up!

Back in September, during the depressing days after Lehman collapsed, I posted a few mindless videos as distractions of the day to get your mind off of Finance.

I’m a day late because the markets rallied pretty nicely today. But, in honor of all the chatter about quantitative easing and America going they way of Japan, here is the distraction of the day: The Vapours singing “Turning Japanese,” another classicly absurd ’80s song and video.

As interest rates in the developed economies approach the zero bound, we must begin to ask ourselves how effective monetary policy can reasonably be in these circumstances. And if policy is to be effective, which policy tools will be most advantageous to use? Or are we just pushing on a string here?

In plain English: central banks are running out of bullets and the deflation bogeyman seems to be right on our doorstep. Can they even stop him from ripping our house to shreds and sending us into depression?

Japan’s policy makers generally procrastinated considerably in terms of implementing any kind of stimulative measures, as well as prematurely reversing the benign impact of policies which had some earlier success. In terms of monetary policy, the BOJ did not actually embrace quantitative monetary easing until 2001, eleven years after their bubble had burst.

The Institute for Supply Management (ISM) released its monthly report on Manufacturing, the ISM Manufacturing Report on Business®. It showed a reading of 36.2 down from 38.9. Where 50 is the demarcation line between growth and recession, 36.2 says the manufacturing industry in the United States is deep into recession territory.