On Thu, 16 Apr 1998, Jay Hecht wrote:
> Can someone tell me how this isn't a replay of Keynes' analysis of the 1930s?
> I believe we have the following common features:
> 1) Profound loss of confidence in the banking system (exluding the Postal
> Savings system?)
> 2) Withdrawl of money into mattresses.
> 3) Interest rates below 1.75%
> 4) Surplus of savings and capital
> 5) Rising unemployment
> 6) Potential "beggar thy neighbor" exchange rate policy - China hold's the
> deck here
Except for one huge difference: Big Governments everywhere have made sure
that deflationary tendencies haven't turned into a generalized crash or
an actual meltdown in GDP. Instead, Japan has experienced sectoral
financial meltdowns, which the system as a whole has been able to
recontain (the crash of the Bubble in 1990-92, the rising yen shock of
1993-95, and now the Asian crisis of today). All this talk of how Japan is
going to go bankrupt tomorrow is so much hooey -- what's happening is that
some deeply unsettling fears about the length and tenure of the Wall
Street bubble are being projected, by the usual punters and
earnings-obsessed analysts, onto an immensely powerful Japanese economy
all but drained of speculative excess and about to declare its fiscal and
political autonomy from the USA.
Let's not forget that Japan's postal savings system holds literally
trillions of euros worth of assets, that Japan is running mongo trade
surpluses, and that the current recession is a product of induced by
stupid austerity (Japanese tax hikes on consumption etc.) and the Asian
meltdown (caused by torrid financial speculation). If Japan really did
what Wall Street says, namely raised interest rates and cut domestic
spending, you'd see a global credit and GDP holocaust which would make
the breakup of the Soviet economy look like a success story. The criticism
of Japanese infrastructure boondoggles misses the point -- bridges create
more skills and employment than the $300 billion US military-industrial
complex, in any case, and Japan can use such a stimulus. What the entire
Pacific Rim economy needs right now, however, is a coordinated
**Asia-wide** Keynesianism. This is where the European Union, for all its
manic austerity drives and central bankocracy, is way ahead of East Asia:
the rich Central European countries are sending billions of euros to the
peripheral countries of Europe, have renegotiated Eastern European and
Russian debt at favorable interest rates, and are serving as the consumer
market of final demand for Polish, Czech and Slovenian exporters. No, this
assistance isn't yet enough to start a genuine boom, but it has certainly
kept a floor under these countries during the worst of the Long Depression
of the Nineties, and offers important clues to what a genuine
Eurokeynesianism might achieve in the next century.
If the Sony chairperson is serious about restarting the Pacific Rim
economy, then we're talking huge debt write-offs for Southeast Asian
countries, to be made up the good old-fashioned way, by printing more yen.
This doesn't have to be hyperinflationary (though it ought to be at least
mildly inflationary, to counteract the current round of deflation); you
can salt some of these bonds away in some long-term account, safe from
speculators and real estate swindlers, and use the rest to fund an
expanded welfare state, thus creating the consumer demand these economies
so badly need. At a bare minimum, given the $6.5 trillion GDP Pacific Rim
economy, a deficit stimulus of, say, 5% of GDP should avert
catastrophe -- roughly $325 billion a year. You will note that the $145
billion IMF bailout, plus the $120 billion or so Hashimoto plan, plus the
innumerable private bailouts by European and Japanese banks of their
Southeast Asian loans, whose total we won't know for awhile, come pretty
close to this already. This is the bare minimum, of course; to really kick
things into gear, Japan, Hong Kong, Singapore and Taiwan would
have to spend a whole lot more. At this point, they don't have much
choice; either they and the Europeans start spending some real money, or
we're going to see another round of hideous deflationary collapses and
corresponding trillion-dollar bailouts, this time on a truly planetary
scale. Wall Street had better pray for Nippokeynesianism, else the 1998
Bubble is going to go the way of the 1989 Nikkei.
-- Dennis
