Re: Japan

["Ronald Calitri" <calitrir@xxxxxxxxxxxxx>]

    A few problems with this analysis: A: Starting before 1992 the Japanese
bubble was also supported by export earnings not repatriated. These portions
of portfolio were also downed by the 1997 events.
    The global position of  Tokyo is indeed problematic, but just as much
because of its intra-regional competition with Hong Kong and others in the
same time zone. If only the money did indeed go "wump", "wump" from New York
to Tokyo as it does from London to New York and the same "slup", "slup" that
London hears from New York was heard in Asian ears! Talk about the  need for
a combined book is impossible until it is recognized that adding up the
total loaned funds at 1996 as you do below equals $1.4 trillion or a
fraction of one US individual's wealth.
    Developing Asia did indeed follow the example of Tokyo, by parking its
earnings offshore, and worsened this record thereby. Since you think the
United States is at full employment, you will not understand the result is
the same as at our country: the lowering of relative wages and abasement of
the poor has brought about an economic crisis. Your offer to continue
exporting goods cheapened on the basis of immiseration should be declined
without respect. On the other hand the essence of the present demands that
the poor Asian countries band together and use their UN guarantees to lend
Japanese workers the $100 bn. directly. At least that would start the ball
rolling. Your punishment for making that crack about mindless consumers
should be to stop making the stuff!
    Another note you do not hear is tolled by reexports (not a misspelling),
and also labor force. That adds links between the US and 3rd. World
industries that are structural. There are transhumance links too with US
rural areas more impoverished. In fact as much as 1/4 of the New York area
labor force toils in third-world situations. No wonder our unions are so
"vocal", so would yours be if you were allowed to have them!
    I agree with you and have noted before the fundamentals issue has a Keyn
es long-term angle and if neo-classical economics is wrong, neo-classical
fundamentals are wrong, too! Let me ask you a practical question, though:
What exactly would be lost, by the global enforcement of work-place norms,
except a hit to the relative wages of normal and superior folk, as if they
cared!
    I am afraid you are getting scared of a normal industrial process when
speaking of having to write-off still capitalised old-regime industrial
segments. That can be fixed with financial engineering and should not be an
impediment to investments in human improvements. Please do not worry about
the US trade deficit because, actually, there is a lot of stuff in that new
economy it seems only the US will make!

    Until they are able to get their economies on track using things it will
take dollars to buy, stable, independent Asian parities are an unlikely
result. Since the Clinton US will have to keep this promise, the Asian role
seems also to be pre-destined. It is either to vote republican or Join with
Latin Americans and Africans in the same relative situations so as to make a
concerted effort to bring to the American electorate sufficiently the need
to make Clinton cough up on this "transformative" "leapfrogging" he has
promised for developing countries enough to make it a domestic as well as
international issue. So you Marxists 't'other side o'swamp', stop biting
your nails!
    Separate posting on the US debt problem seeming thus warranted,

Chiao Till Then,
Ronald Calitri.


----- Original Message -----
From: ÁÎ×Ó¹â HenryC.K.Liu ¹ù¤l¥ú <hliu@xxxxxxxxxxxxxx>
To: POST-KEYNESIAN THOUGHT <pkt@xxxxxxxxxxxxxxxx>
Sent: Saturday, February 26, 2000 12:04 AM
Subject: Re: Japan


> Japan see its bubble as having been forced on them by US monetary policy
in earlier
> decades and the political pressure from Washington on Japanese interest
rates and
> the exchange value of the yen.
> The Japanese see their current probem as primarily financial and not
> economic.
> They see the Japanese miracle as having been rendered inoperative by
American
> financial globalization.
> Japan looks to regionalism as a solution to their problem, in line with
the EU, and
> as a countermeasure against American globalization.
> Japan fears Toyko becoming a second London, a financial outpost of an
American
> financial empire.
> Traditionally, Japan sees economics as a factor of geo-politics, not the
> other way around, as the US does.
> Japan has no intention of changing the society and culture to fit into
> globalization requirements.  Asian capitalism remains inherently state
> capitalism.
> There is very little desire in Japan to structurally reform its business
> culture merely to fit into an American globalization of dubious future.
> Collectively as a national economic force, the Japanese feel they are
> beginning to command respect in the West, but individually, they feel that
> Westerners still harbor deep-rooted perjurdice agianst them.  This
sentiment,
> reinforced by Confucian aversion towards individualism, discourages
entrepreneurship
> in Japan.
> Most Japanese still look at Japanese maverick multinationals, such as Sony
and
> Honda, with disdain and skepticism.  What is good for Sony is not
necessarily good
> for Japan, the opposite of General Motors.
>
> US policy misjudgments did not begin with Bill Clinton. But the
> administration certainly exacerbated the situation when it eased pressure
on Asian
> nations to buy as much from the United States as they sell to the US.
> Over the last decades, Asian nations-China and Japan in particular-have
amassed
> massive holdings of U.S. dollars and Treasury securities. These holdings
have
> underpinned the administration's quixotic policy of using a strong dollar
to keep
> inflation at bay.
> For this and other reasons, there has been zero effort to encourage the
Southeast
> Asian exporting economies to float their currencies, comfortably linked to
the U.S.
> dollar until 1997.
>
> Developing Asia has followed the Japanese model in finance. The world's
highest
> savings rates are intermediated almost entirely through banks.
> Capital markets, although they exist, have been relatively illiquid. Asian
equity
> markets, of course, roared ahead, driven by the phenomenal appetite of US
mutual
> funds for emerging-economy stocks.
> According to the World Bank, private capital flows to East Asia quintupled
between
> 1990 and 1995. In 1995, East Asia claimed 47 percent of capital flows to
low-income
> and middle-income countries.
> By 1995, trading volume as a percentage of market capitalization was
greater in
> China, South Korea, Thailand and Indonesia than in the United States.
>
> The 90s "miracle" unravelled abruptly  in July 1997 when, starting in
Thailand,
> speculators bet against currencies when it became apparent that exports
would be
> inadequate to service loans.
> The process spread across the region so rapidly because devaluation in
Thailand made
> exports from other countries less attractive. As the ranks of plummeting
currencies
> grew, the pressures on remaining ones escalated.
> Even relatively well-managed Hong Kong finds its investments in
> export-dedicated manufacturing in South China uncompetitive, and the Hong
Kong
> dollar came under repeated speculative and manipulative attacks.
Ironically, Hong
> Kong was a victim of the relative liquidity of its equity market.
> These development were exacerbated by the Chinese and Japanese policies of
running
> large trade surpluses with the United States.
> Over the last decades, both countries have made massive purchases of U.S.
dollars
> and Treasury securities, which permitted these juggernauts to continue
their
> mercantilist strategies and capture excessive shares of the U.S. market at
the
> expense of their Asian neighbors.  Yet, the main beneficiary of this trend
has been
> the US which continued to finance the trade deficit with treasury notes
bought
> readily by its trading partners and basked in the artificial sunshine of
low
> inflation sustained by cheap Asian imports.
>
> Regarding Japan, U.S. officials have been more concerned about the health
of its
> equity markets and debt-laden banks than Japan's export bonanza.
> Until recently, the US has turned a blind eye to Japan's de facto policy
of keeping
> the yen above 120 to the dollar (147 in August 1998) despite a ballooning
trade
> surplus.
> U.S. domestic policy has played a major role in fostering Asia's economic
response.
> While Federal Reserve Board Chairman Alan Greenspan has fretted that
equity
> prices-with the Standard and Poor's 500-stock index yielding only about 4
> percent-are too high by historical standards, he has failed to acknowledge
that real
> interest rates are abnormally high until after the Asian crises.
> A 30-year Treasury rate close to 6.5 percent translates into a real
interest rate of
> about 5 percent with an inflation rate of 1.5%.
> Asian economies could not keep their currencies in line with the lure of
those
> yields.
> Japan and its banks, being dominated by US monetary policy, were in no
position to
> bail out these economies.
> While the United States was able to rescue Mexico, it was unwilling to
save Asia
> unless Asian leaders become less ambivalent about free markets.  The US
decided that
> the solution was an even stronger dollar.
> All through the crisis, the Clinton administration has maintained the
> soundness of the domestic economy through external deflation and safe
haven capital
> inflow.
> Yet since 1985, one-third of U.S. growth has come from exports. If the
United States
> can't export, and a flood of new imports depresses
> or distorts incomes and growth, economic fundamentals will suffer.
> Thus the US is impatient for Japan to "carry its weight" in leading
recovery in
> Asia, while Japan is saying its problems are not its internal structure
(though its
> could use modernization, but not along US suggested lines).  To Japan, the
culpit is
> US global policy.  Since 1997, the US has discovered the new economy of
high tech,
> information and Internet commerce.  Its planners now aorry that a recound
of export
> may trigger undesirable inflation. Thus what even little incentive to help
Japan dig
> itself out of the hole has evpaorate in the new economy.
>
> There have been many occasions during the twentieth century when
> stock market developments in New York or London depressed
> equity values in east Asia, but October 1997 was the first time that
> the causality worked in reverse.  While this is painful to Asians, its
> instill in them an awarenes of their own importance in the global economy.
> Increasingly, Asians, led by Japan, are reluctant to play by rules set by
Western
> interest for Western interests.
>
> The power of financial contagion is recognized by Asian as a bargaining
chip in the
> old North/South dialogue. The countries of east Asia have experienced
numerous
> financial crises in the modern era, but the notion that defaults on Thai
property
> loans might rock the currencies of countries as far away as Korea, Japan,
Russia,
> and Brazil and eventually the US, is a new development.  Suddenly, the
rich have
> more to lose, or at least that was what was widely expected. What was not
ecpected
> was the Greenspan ordered a serious of interest rate cuts that fueled US
equity
> prices.  Global funds, fleeing toward quality, had no alternative but to
accept
> lower US rates.
>
> The countries of east Asia, excluding Japan, accounted for half of the
growth in
> world output since 1991, up to 1997, despite the fact that they accounted
for only
> about twenty percent of the world's real GDP. Their sharply reduced growth
rate
> since 1997 due to systemic banking problems and reduced access to foreign
capital,
> offset the upturn in the EU.
> Investment spending accounted for about 30-35% of East-Asian growth during
the
> 1990s, compared to 15-20% in other regions of the world.
> In 1996, East-Asian capital investment, excluding Japan, was equal to
about 82% of
> U.S. business investment, up from only 30% in the
> mid-1980s.
> Because East Asia accounted for about two thirds of all capital
> investment in the world economy from 1990-97, the recent devaluations will
encourage
> countries with surplus productive capacity to become even more aggressive
exporters
> than they were previously.
> Also, because East Asia already accounts for about 26% of
> world exports, compared to 8% for Japan and 17% for
> the United States, its newly enhanced competitiveness is a major
disinflation shock
> to the world economy, especially in
> sectors where it has significant excess capacity, such as textiles,
> footwear, steel, petrochemicals, semiconductors, and other
> electronic goods.
> East Asia has been a major importer of capital from the
> global banking system during the 1990s. The region's outstanding
> loans at the end of 1996 were about $752 billion, with $207 billion in
> Hong Kong, $189 billion in Singapore, $100 billion in Korea, $70
> billion in Thailand, $55 billion in Indonesia, and $22 billion in
> Malaysia.
> The recent East-Asian financial shock's adverse effects on the region's
consumption
> and investment has set the stage for global
> deflation, not just disinflationary competition in the goods markets
> where East-Asian countries have surplus capacity. The East-Asian
investment boom and
> bust is unlikely, however, to be as deflationary as the opening of new
regions of
> settlement during the nineteenth century, because the world has shifted
from a gold
> standard to a floating exchange rate system, with discretionary monetary
policy. The
> gold standard made it impossible for central banks to respond to large
increases in
> output with offsetting expansion of the money supply. In the current
situation, by
> contrast, central banks can respond to deflationary shocks by slashing
interest
> rates,
> expanding the money supply, and devaluing currencies.
>
> The major systemic risk posed to the global economy by the
> East-Asian devaluations is likely to be trade conflict. The United
> States currently sends about 20% of its exports to East
> Asia and 12% to Japan, while deriving about one third of
> its imports from the region.  Japan sends about 37% of its
> exports to East Asia, while the same countries account for about 35%
> its imports. The EU, by contrast, conducts less than 10% of either export
or import
> trade with East Asia, excluding Japan.
>
> As a result of its exposure to the region, the United States will be
> vulnerable to several potential trade shocks. American
> exports to East Asia will continue to slump, while exports from East Asia
will
> become far more competitive in U.S. markets. The East-Asian crisis will
also depress
> the value of the yen, as well as developing-country currencies in Latin
America,
> south Asia, and those devaluations will encourage further growth of import
> penetration into the U.S. economy, without generating any offsetting
growth of
> American exports. When all the exchange rate adjustments resulting from
the
> East-Asia crisis work their way through
> global markets, it is not difficult to imagine the U.S. trade deficit
> expanding to $300 billion range before reversing, up from $192 billion in
1996.
>
> There is nothing automatically wrong with large trade deficits.
> Because the United States currently has a full-employment economy,
> the trade deficit is actually a potential inflation safety valve. It is
> providing the United States with a larger supply of goods at low
> prices than would be possible if it depended solely on domestic
> manufacturing capacity. In fact, the relationship between inflation
> and traditional measures of resource utilization, such as the
> unemployment rate and the capacity utilization rate, has broken
> down, because the import share of American goods-consumption is
> now over 33 percent, compared to 15 percent in the early 1980s. The
> current trade deficit has also resulted from a surge in America's
> private investment spending, not from the large budget deficits that
> required the United States to import capital during the 1980s.
>
> The problem with trade deficits is political. Many Americans
> perceive the trade deficit to be a source of job losses or slower wage
> growth, not an inflation brake that permits a stronger and longer
> expansion in the economy's non-tradable sectors. This phenomenon
> is very apparent in the debate over the administration's request for
competitive
> policy, and the defeated fast-track authority to negotiate new free trade
> agreements. Many members of Congress are reluctant to give the president
new
> negotiating authority, because they perceive that the trade agreements of
the early
> 1990s, such as NAFTA and
> GATT, failed to prevent a return to large trade deficits. Allegations that
global
> competition threatens the wages or job security of less-skilled American
workers are
> persistently vocal, the latest expression of which is the anti-China/WTO
positon
> taken by the AFL-CIO.
>
> Because the Asian crises have lowered global inflation and postponed
> monetary tightening in the G-7 economies for a few years, the stock
markets of
> NorthAmerica and Europe has enjoyed a sense of invincibility.  But as
Greenspan
> warnedrepaeatedly, this cannot going for much longer.
> The Asian crises have ignited a political struggle to slow the growth of
> world trade, and that could undermine the competitive forces that have
made it
> possible for flexible economies, such as the American one, to achieve near
full
> employment with low inflation.
>
> The current US attempt to place competition policy at the top of the
> international negotiating agenda is designed to counter the fact that a
very large
> number of emerging market economies, especially in Asia and the former
Soviet bloc
> but elsewhere as well, are currently developing national competition
policies for
> the first time. Every country will incorporate unique national
characteristics in
> its approach but the world according the US gospels should be spared of
the enormous
> future controversy and conflict with international agreement now to create
norms on
> which those new policies
> could be based.
> Japan, leading the rest of Asia, is simply not buying the US line.
>
> Hence competition policy, and especially its links with international
trade and
> investment, has become a central focus of  recent US-Japan summits in
anticipation
> of the next set of major negotiations in the World Trade Organization. The
US goals
> are agreement on (1) common rules that can be credibly enforced at the
national
> level and (2) effective cooperation between national antitrust
authorities.
> Four sets of issues are to be included in such an agreement :
>
> 1.    cartelization, notably including export cartels;
> 2.    other horizontal restraints, especially price-fixing;
> 3.    mergers and acquisitions; and
> 4.    national treatment of foreign direct investors and services.
>
> The United States wants Japan to address a whole oists of items of which
auto parts,
> steel export are top of the list.
>
> Ironically a major problem in moving toward international agreement has
been
> domestic opposition in the US. Part of the problem has simply been
bureaucratic,
> with the antitrust authorities resisting a central role for the trade
policy
> authorities in negotiating such an arrangement. Part has been a fear of a
watering
> down of American antitrust standards, or a "race to the bottom."
> Part of the problem, however, is a fear that other countries want to use
the rubric
> of "competition policy" to attack US (and European) antidumping practices.
> The US feels that Japan, instead of proposing new funds that would make
$100 billion
> of capital available for the rest of Asia, Japan should be importing an
additional
> $100 billion worth of products from the region.
> Japanese rejection of American advice implies a major challenge to the
continued
> march of globalization. Antiglobalization forces are mounting in both the
industrial
> countries, where they are celebrating the defeat of fast track negotiating
authority
> in the United States as a "historic turnaround in attitudes toward
international
> integration," and in many emerging market economies due to the onslaught
of yet
> another financial crisis. Both the intellectual underpinnings of
globalization, and
> the policies to implement it, are likely to
> be questioned more severely than at any other time in the past two
decades, as
> evident in Seattle.
> Japan is a leading voice in this debate.
>
> Conventional views of Western economists on Japan are dominated by US
Treasury/IMF
> attitudes that essentially carry a creditor's bias: that solutions lie in
various
> degrees of putting fundamentals in place so that banks can lend again
without
> excessive risk (the so-called confidence game, as Krugman puts it). If
"good
> fundamentals" should wreck economies and political structures in the short
or medium
> term along the way, that is the price of good finance.
> The paradox is that the proponents of this approach, American economists
personified
> by Summers and Fischer, come from a net debtor nation, but this condition
is
> generally disguised by decades of American dominance in international
banking.
> Asians, including the Japanese, may have different views.
> Behind the apparent Japanese reluctance to follow US/IMF advice on how to
cure the
> Japanese/Asian financial/economic problems, is a seldom mentioned (at time
surfacing
> quietly in unreported Diet debates) search for a strategy for jockeying
for
> independent and equal positions in the pending restructuring toward a new
global
> financial architecture and economic order.
> Tokyo has no desire to become another London after the Big Bang and Asia
does not
> want to become like Latin America.
> The sooner American policy makers accept and deal with this serious
> communication and conceptual gap, the sooner the dialogue will be on
> track for real solutions.
> Japan, where the ruling class is sharply divided along a number of axes,
is unified
> with regard to the desirability of more political independence from the
U.S.  With
> respect to domestic issues, the
> key split is between rural and city interests. The former does not want
city folk to
> socialize Japanese bank debt, which places too much of the burden of
crisis
> resolution on the rural districts. The latter does not want to nationalize
the
> financial system with the aim of restructuring banks and other financial
> institutions from the bottom up because too many jobs and privileges
enjoyed by city
> folks owning and working in the financial sector are at stake. The bailout
package
> approved by the Diet in late October 1998 - a package that divided the
burden
> between rural and urban interests - had limited positive effects on the
Japanese
> economy.  Nor is Japan able or willing to join the U.S. as a market of
last resort
> for the surplus products of Asia. Japan (like Europe), whatever the
relative
> importance of export versus home demand at any given time, will not give
up its
> balance of payments surpluses (hence strong currencies) nor will its
workers and
> small businesspeople uncritically ape mindless American consumerism. That
leaves
> investment and government spending as the only realistic sources of new
effective
> demand.  Home investment for the time being is dead, hence the great
stress  on tax
> reductions and an expansion of government spending, specifically public
works, to
> restart the Japanese economy. However, there are strong
> conservative pressures in Japan to keep the already high budget deficit
from growing
> even higher; and because public works have been the main avenue of
internal economic
> expansion in Japan for more than adecade, it's difficult for planners to
develop new
> projects that make sense in terms of economic rationality and social
welfare. The
> Japanese will not trade away their familist, groupist, and
> egalitarian values and practices for more Anglo "economic efficiency",
namely
> preditory economic practices.  Japanese "groupism" has been responsible
for Japan's
> export powerhouse status, that is, its superior capacity to compete with
foreign
> countries, while enjoying a relatively egalitarian society at home, a
balance
> lacking in the America system.
>
> Japan may be an economic superpower, but it is not an independent
political power,
> and not even a financial power.
> In order for trade with the US to grow beyond trade barriers, historicall
the
> Japanese had to allow their trade surplus to be invested mostly in US
assets and US
> production facilitates. In the last decade, Japan had begun to invest in
Asia to
> develop an Asian market. But the nature of market capitalism is such that
the export
> side grows exponentially faster than the domestic side, resulting in
overcapacity in
> relation to a slow growing global consumption market due to low wages. The
problem
> was that unlike the US market, Asia did not,
> and still does not, have a central authority to manage a stabilizing
regional
> economic and trade policy and to ensure a balance between production and
> consumption.  While the US controls, to a lesser extend as time passes,
Asia
> politically, its economic involvement in Asia has been relatively minor.
> Asia represented a cheap bargain for the US in geo-political terms.
> American banks lost only US$30 billion in Asia since 1997, while Japanese
banks lost
> US$450 billion and European bank who came late, lost US$250 billion .
This was the
> result of the US strategy of maintaining global political control with
money from
> dependent allies (18% IMF contribution, 95% control).  Because of the size
of the
> American economy and American dominance in the global financial structure,
foreign
> capital in the US becomes domestic capital. If the Japanese starts to sell
their US
> assets, they lose as much as the Americans, perhaps more brcause the
Japanese sell
> to America.  That is why Japan cannot act like a financial superpower
despite of
> their paper wealth. Just like nuclear arms control scholastics, the
American
> financial system has been designed so that it cannot be destabilized by
opponents
> because it is a doomsday machine.
> Another point is that since Asia, along with the rest of the world,
suffers from
> overcapacity, its problem cannot be solved by further injection of
capital. As has
> been pointed out by others, new funds are needed by Asia merely to bail
out the
> existing creditors. What Asia (and the world) needs is greatly expanded
consumption
> to absorb the overcapacity.  Yet market capitalism does not permit
increased
> consumption without increased investment which in turn exacerbated
overproduction.
> What the global economy needs is getting used to a drastically lower rate
of return
> on capital, say 3% instead of 20+%, with the 17+% transactional surplus
(profit) to
> go directly to labor
> rather than to capital, thus stimulating consumption by providing
purchasing power
> to workers.  (Even Soros supports this idea). Investment bankers were
complaining
> that 20% returns were not enough just prior to the crash because the money
could go
> next door and get 25%, causing a race to the bottom in wages and
environmental
> pollution all over Asia.
> Capital cannot comparison shop for higher returns if the global standard
return is
> fixed at 3%.  Within a short time, the norm would be widely accepted.  It
is a myth
> that the world needs capital and must meet its terms.  On the contrary,
capital
> needs the world and must meet its terms.
>
> The Asian Financial Crises have sparked the reemergence of regionalism.
> The G7, G10 or G20 structures, categorizing economies by wealth, are
increasingly
> irrelevant, as reflected since by the loss of influence of the Trilateral
> Commission, the Club of Rome, and the like.  The surprised success of the
euro is
> stimulating new thinking about Asian regionalism, among intellectuals and
some
> government officials.  During the annual IMF meeting held in Hong Kong in
October
> 1997, 3 months after the collapse of the Thai currency that began it all ,
a
> Japanese proposal for a $100 billion regional rescue plan was killed, not
> surprisingly, by the Americans in favor of the US-controlled IMF.  Many in
Asia had
> thought that a Japanese-led rescuse
> would have been more effective and at least less damaging than the failed
IMF
> attempts.  That view is now reluctantly acknowledged, if still not openly
accepted,
> even within the IMF and the US Treasury Dept.
> With the euro a reality, the vision of an unified Asian currency has
gained
> momentum.
> In the long run, the world may see the replay of a new Bretton Woods
agreement, but
> instead of a gold-backed US dollar that became fatally wounded in 1973 by
decades of
> US fiscal irresponsibility, this time it may well be a USD-EURO-Asian Unit
parity
> arranged under the umbrella of a UEA world currency, to rid us of the
destructive
> currency turmoil of the past decades.  The problems to be overcome toward
this
> vision is immense,
> including a need to reorient Asian political attitudes and a historical
> legacy of conflicts further poisoned by the divide and rule policies of
150 years of
> Western imperialism.  And the G7 now must cut the smaller economies a
better deal.
> But then less than 10 years ago, no one expected the euro to be
> realistically possible.
> And if Europe, with its long history of wars and conflicts, can come
> together for a common good, why not Asia and the world?
>
>
> Henry C.K. Liu
>
>