My FT this morning talks of the fears in Tokyo of yet another Japanese downturn. The Cabinet Office and the Bank of Japan both agree that there is "substantial uncertainty towards recovery". Peter Morgan, the chief economist of HSBC in Tokyo said yesterday: "We believe that the latest recovery has already ended, making it the shortest on record." GDP growth is now officially estimated at (minus) -0.7%, down from (minus) -0.3%!
The Japanese know exactly what to do -- or at least they know the first essential steps that are likely to give them positive GDP growth figures, however small. This is to insist on transparency of accounts, particularly of the banks and the big firms. Koizumi was supposed to bring this about. He said he would when elected, but hasn't achieved it yet. America is also heading towards deflation. For 57 years since WWII, the US's current account balance has been symmetrical around zero. Either the public sector has been positive (with the private sector negative) or the private sector positive (with the public sector negative). But not now. During the last few months, both have gone into deficit (5% of GDP in toto). This is unprecedented and I'm sure that this is the reason why Bush is becoming worried at last and has appointed a new Treasury Secretary and a new Economic Advisor (not that they'll have any new policies, of course!). But the solution for America is, like Japan's, little to do with economic tweakings here and there. Besides, as touched upon in my message to Harry this morning, for every economist who says: "Tweak here" there'll be another one who'll say, "Tweak there". Just like the Lilliputans who couldn't decide which end of the egg to crack. The solution is exactly the same as Japan's. It involves transparency. If Bush were to insist upon the most rigorous examination of what has been happening to the accounts of firms and investment banks in the last ten years and *fully* expose all the illegalities and chicaneries that have been going on, then it is possible that the average American family will start trusting the market and invest again as they used to (50% of all households) and not just spend (or worse -- like the Japanese -- stop spending and putting their money in the mattress). (In theory -- and no doubt the solution that would be given by some economists -- is that American customers should spend at an even higher rate than they do now and thus allow businesses to make the necessary investments from profits [or to pay off their debts] -- and maintain this for two or three years -- but how likely is this when their credit card debts have never been higher than now?) Koizumi is at least trying to get transparency in Japan. As far as I can see, Bush is not trying very hard at all. Look at the farce of the Securities Exchange Commission! Apart from Spitzer's own initiatives, clean-up is going at a very pedestrian pace (probably because Bush himself doesn't want to be exposed). It seems to me that America is in extreme danger of following Japan into deflation. And all the dangerous nonsense in the Middle East is not going to help either, and could possibly make the whole situation far worse. Keith Hudson ---------------------------------------------------------------------------- -------------- Keith Hudson,6 Upper Camden Place, Bath BA1 5HX, England Tel:01225 312622/444881; Fax:01225 447727; E-mail: [EMAIL PROTECTED] ________________________________________________________________________
