On Japan’s Economy: Some Old Scribbles Show What Massive Fraud Has Taken Place Over Last Decade

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summers rubin greenspan.jpg
I just ran across some of my notes from a conference organized by the Japan Institute of International Affairs in Hakone, Japan from March 12-13, 1999.
I was about to toss these scribbles until I glanced through them and found so many gems they should probably go to the National Diet archives.
Keep in mind that today the Japanese government announced that its economy had contracted at jaw-dropping annualized pace of 12.7 percent in the three months through December, the worst fall in the past 35 years. How does one treat national hypothermia on such a scale?
I may print and post all of my notes at a later time, but here are some of my March 1999 scribbles:

1. George Soros — has reform ideas — Particularly International Credit Insurance Fund (or Corp). Missing issue — not enough interest in international community to generate real reform. [Soros was not at conference but wrote this at time and was reference at JIIA Conference.]
2. Former Japan Ambassador to the US and JIIA Chairman Nobuo Matsunaga stated: “On U.S. economy — Met Greenspan, who was bullish on U.S. economy, except modest concern about overheated capital markets.” Matsunaga recognizes overwhelming dependence of world growth on U.S. economy.
3. China’s Central Bank Governor — “China will maintain present current value of currency.”
4. Naston (from Indonesia) — a. short term debt build up high — borrowers highly leveraged; b. banking system weak — corrupt — weak oversight structures. . .
5. Koichi Haraguchi — former Deputy Foreign Minister and Ambassador of Japan to the United Nations: “Let’s dscuss an Asian Monetary Fund.”
6. Barbara McDougall — “When it comes to contagion and short-term capital flows, what will the Asian Monetary Fund do that the IMF won’t? What national agendas will be in play?

My notes are extensive, but this is fascinating and captures the collision of perspectives between some leading American economic thinkers and Asian foreign policy and economic elites.
Matsunaga, for instance, saw ten years ago that the world was too dependent on the American economy for growth. China was uninterested in properly adjusting the weight of its currency — a hot topic of debate even a decade ago. George Soros was calling for economic reform back then but couldn’t muster enough support from the international community to pay attention. The Indonesians and Thais reported openly about the lack of oversight of their financial system — and America became like they used to be. Barbara McDougall from Canada didn’t believe that the 1997-98 East Asian Economic Shocks justified any new Asia-directed financial institution building, and the Japanese and most other leading Asian economic thinkers did believe something was necessary.
We know the results today. Asian economies that could built up huge currency reserves as shock absorbers in case of future crises. To some degree, this aggravated an already bad global imbalance of savings and consumption between the American economy and those it did business with in Asia — particularly Japan and China.
I took with me to this conference a 4 March 1999 Financial Times article written by my then boss Clyde Prestowitz, President of the Economic Strategy Institute, titled “The Japan that Can Say Yes.” He wrote:

There have indeed been rumblings on the right from such figures as Shintaro Ishihara, conservative politician and novelist (co-author of The Japan That Can Say No) who argues that the whole economic crisis is nothing more than an American plot to undermine Asia’s heretofore rising influence. But these dissonant tones have not so far resonated with the Japanese public of mainstream policy makers. Nor are they likely to do so.
There has been a long-running debate as to whether the peculiarities of the Japanese economy that came to be characterized as Japan Inc. were cultural and thus largely immutable or matters of policy and convenience that might change to adjust to new circumstances.
Although always questionable from the point of view of long-run economic efficiency as well as international comity, Japan’s adoption of policies that excluded foreign participation in its economy and emphasized national champions in key industries was understandable as part of its attempt to rebuild a national identity and reassert sovereignty in the aftermath of defeat. When these policies succeeded beyond all expectations, they were cloaked in the mantle of culture — thereby giving them an aura of uniqueness and permanency.

What strikes me given Japan’s near term memories of a decade ago — and shocks in the 1970s as well is that it may continue to evolve in new and different directions as it copes with current circumstances.
But as I think about how the US is responding — and how we are building national champion firms and cloaking our national policy decisions in the cloak of culture past and culture yet to come, we are sounding a lot like the Japanese were when they were trying to remain insulated from outside pressures.
The bottom line for me though is that this is deja vu all over again. We saw an over-dependence on the American consumer and American economic growth driving Japanese and Chinese economic behavior — and no one did a thing about it. This is tantamount to global fraud by all of those economic elites in Japan, the U.S, and China. The global imbalances have always mattered, though we have been seduced over the years to believe they did not. Keynes believed structural imbalances were important — but even he has been conveniently reinterpreted or pushed into the closet.
Truth be told, the Chinese have been understandably eager to grow as fast as possible to achieve social transformation. I don’t hold the Chinese as complicit in our current circumstances as I do Bob Rubin, Lawrence Summers, and Alan Greenspan — who were the high priests of the economic order we built and in which Japan played eager geisha.
But today China can’t pretend ignorance and has become complicit — and must do something to save both us and itself. Japan’s financial leaders, in contrast, have understood for a long time that the equation that they had helped construct with American political elites was unhealthy and unsustainable.
— Steve Clemons

Comments

8 comments on “On Japan’s Economy: Some Old Scribbles Show What Massive Fraud Has Taken Place Over Last Decade

  1. David says:

    It should say http://trulyrawstory, pauline.

    Reply

  2. pauline says:

    David,
    This clown needed to give his salary back years ago.
    *********************
    “Greenspan says recession will be ‘longest and deepest’ since ’30s” by Jeremy Gantz
    Tuesday February 17, 2009
    The maestro was wrong.
    Eight months after he predicted the worst was over and the threat of recession receding, former Federal Reserve chairman Alan Greenspan said the current global recession will “surely be the longest and deepest” since the 1930s.
    The lifelong free marketer, who ran the Federal Reserve from 1987 to 2006, has been rethinking his assumptions about how financial markets work best since the U.S. economic crisis deepened sharply last year; he now sees a much larger role for government regulation.
    “I see no alternative to a set of heightened federal regulatory rules for banks and other financial institutions,” Greenspan said in a Tuesday evening speech to the Economic Club of New York, Reuters reported. He said he was “deeply dismayed” to realize in mid-2007 that the premise that firms were enlightened enough to monitor their own risks had “failed.”
    But he held out little hope that the brand-new $787 billion stimulus bill signed into law Tuesday by President Obama would stanch the economy’s bleeding, saying it won’t produce long-term effects until the financial system is repaired.
    “We need to assure that the repair of our financial system precedes the onset of major fiscal stimulus,” Greenspan said. “Unless we are successful at that, in my judgment, the positive impact of a fiscal stimulus will peter out after its scheduled completion.”
    Nobel Prize-winning economist and former World Bank chief economist Joseph Stiglitz has in part faulted Greenspan for the current crisis, saying he made serious mistakes by supporting every tax cut introduced by former President George W. Bush.
    “His first [mistake] was to support all the tax cuts…they didn’t stimulate the economy very much,” Stiglitz said last year. “This task was then transferred more towards monetary policy, though then (Greenspan) created a flood of credits with low interest rates.”
    see —
    http://rawstory.com/news/2008/Greenspan_says_recession_will_be_longest_0217.html

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  3. David says:

    The two things most disturbing about this post is its validity and the fact that once again, reality was staring us in the face, it had a spokesperson, and no one was much interested. It’s the destruction of the globe’s ecosystems all over again as fiscal folly.
    The people charged with and paid to figure these things out and do something constructive in a timely manner all owe their salaries back to the people who underwrote them, namely us taken collectively, and they need to return any and all awards and renounce any accolades they have received.

    Reply

  4. TonyForesta says:

    Forgive the double post, but for clarity I meant to say: (Few of the PNAC pipedreams were based on sound mathmatics, or science, or advanced theory or analysis. Most purely were an articulation of raw and flawed ideological dreams and visionary hopes, with {NO} measurable credibility, or substantive foundations.)

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  5. TonyForesta says:

    One thousand thanks for another very informative post. Also striking is the recollection of Mr. Clyde Pretowitz of Sakakibara being with “livid Summers and Rubin over the pressure they brought to bear on the Japanese government to withdraw the proposal.”
    Incompentance or mistaken policies or models may be legally justifiable, and… forgivable – but US predator class sharks in the finance sector, extorting policy from the Japanese or any government overtly benefitting “Citibank”, “Goldman Sachs” and other US financial oligarchs and exploiting US security relaions to as the blackjack to strongarm Japanese government officials into buying into the motherofall PONZI schemes – cannot, or should not be legal or justifiable. Theologians can sort out the forgiveness issues.
    These revelations hauntngly mirror the fascists proclamations of the Vulcan’s PNAC pipedreams, wherein select predator class oligarchs and cronies sieze unitary authority and control of the US government and treasury advancing policies overtly benefiting cronies and oligarchs in the predator class exclusively and utilizing the terrible swift sword of America’s hypersuperior military maraud and control the worlds finance and energy resources, enforce American exceptionalism and global domination by American predator class cronies and oligachs. Amen.
    Mr Soros, who prescience is astounding, re-framed the PNAC concept of “American exceptionalism” years ago more accurately as “Supremist America”.
    Recall if you dare the PNAC admonition of the necessity of a Pearlharborlikeevent to energize and expidite the Vulcans unitary, fascist, and predatory policies.
    The conspiracy theory argued by Shintaro Ishihara asserting that “the whole economic crisis is nothing more than an American plot to undermine Asia’s heretofore rising influence” cannot in good conscience be catagorically dismissed.
    Few of the PNAC pipedreams were based on sound mathmatics, or science, or advanced theory or analysis. Most purely were an articulation of raw and flawed ideological dreams and visionary hopes, with measurable credibility, or substantive foundations.
    Those dreams and hope could be, and were ushered along, or cloaked by the combined unitary control of the government, key predator class cronies military and private military, intelligence, and private intelligence, media and finance oligachs as well as rating and regulatory bodies. But the underlying math and the entire PONZI scheme structure were exposed as cracks began to appear in the system, and the entire house of cards collapsed.
    Tear down this financial. The current system is fatally flawed, overtly rigged to benefit and shield the predator class alone, and wildly corrupt.
    The entire financial system must be intelligently dismantled, and reconstructed with entire new models, regulations, oversite provisions and mechanics, and entirely new leadership. The old ways, and the old financial godz are dead and rotting in the field. They will retire imponderably wealthy, – but thier pipedreams of visionairy delusions of exceptionalism, and hyper Ponzi schemes have FAILED miserably, and must be rejected, repudiated, and renounced.

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  6. Clyde Prestowitz says:

    Actually Japan was not so content.
    Sakakibara was Vice Minister of Finance at the time and I met with him during the crisis. He was strongly pushing the notion of the special Asian fund and had persuaded the Japanese government to put up the money.
    He was livid with Summers and Rubin over the pressure they brought to bear on the Japanese government to withdraw the proposal.
    It was a real case of the U.S. using its security relationship with Japan to force the Japanese to accommodate Washington policy.
    Clyde Prestowitz

    Reply

  7. Sherle R. Schwenninger says:

    Steve:
    This is a good post.
    You could have added how Rubin and Summers did everything possible to quash the idea of an Asian Monetary Fund but without being willing to entertain the idea of reform of the International Monetary Fund to make it work more like Keynes imagined.
    Instead we got Bretton Woods II involving the huge build-up of current account surpluses and foreign exchange reserves and Wall Street’s intermediation of these excess global savings into the world’s credit markets.
    In short, Rubin and Summers rejected reasonable alternatives of a more balanced global system for the sake of Citibank and Goldman Sachs, and Japan and China were content to go along for the ride.
    Sherle

    Reply

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