“This week, Tokyo’s central bankers rediscovered a modicum of their old mojo,” The Financial Times told the world on Wednesday. Typically, the FT reports the dialogue correctly but misunderstands the plot action. But we can correct the sentence with a single capital letter. For what they really discovered was a modicum of their old Tojo.
Japan’s Co-Prosperity Sphere expanded greatly in the ’30s, as the Imperial army marched through Asia. But as its supply lines stretched, Japan became more and more vulnerable to interdiction by the US navy. Rather than restrain its ambitions, Tojo Hideki bombed Pearl Harbor.
One of the eternal puzzles of history is why smart people do such silly and stupid things. We have no answer, but we’re happy to see the Central Bank of Japan, the US Federal Reserve and the European Central Bank swing into action. It should be entertaining. Bankers tend to be boring, prudent and cautious. They hold their pants up with belts and suspenders too. “On one hand this…on the other hand that…” they say, hedging their bets. And every one of them has two arms! What a delight to see these timid pedants take decisive, bold and foolhardy action.
Japan’s economy has been taking on water for the last 20 years. They must be getting tired of it. In the heavy seas following the crash in 1980, they flung out life preservers to its businesses, heaved aboard thousands of soaked enterprises and submerged banks, flushed the seawater out of their lungs, and crowded them onto the lower decks. Then, Japan used all its monetary and fiscal tools to keep the boat above water – including quantitative easing, QE. While the economy never fully recovered, neither did it sink.
In the West, the storm blew up only 3 years ago. Lehman went down. Trillions of dollars worth of assets were washed overboard. But tempest-toss’d and weary, the great ship of modern, degenerate, state-managed capitalism is still bobbing up and down…kept afloat – as in Japan – by pumps and chumps.
And now, their barks riding lower in the water than ever, the admirals grow desperate. The Japanese have vowed to use their QE more aggressively. The amount pledged so far – $60 billion – is trivial. But they say they’re going to target a wider range of financial assets…drive the key lending rate even closer to zero…and keep at it until deflation is defeated. The ECB is committed to spend $63 billion on QE too. It was forced to spend $1.4 billion of it last week to buoy up poor little Ireland, which is in danger of slipping beneath the Atlantic waves at any minute. And Ben Bernanke has told America that it should expect a more muscular approach to QE after the Fed meets on November 2nd.
“Central banks open spigot,” proclaimed The Wall Street Journal.
What else could they do? They think they face a choice: it’s the devil or the deep, blue sea.
The politicians didn’t hesitate for a minute. They passed their stimulus bills in a panic. And now they claim success. Steven Rattner, former advisor to the US Treasury secretary, argued in the FT that TARP “did more to keep America’s financial system – and therefore its economy – functioning than any passed since the 1930s.” Were it not for TARP, he says, AIG, Citigroup and Bank of America would have certainly sunk. Maybe GM and Chrysler too. And the recession would have “spiraled downward.”
Maybe he’s right about that. Even so, it seems like a small price to pay. Besides, how do Rattner, Geithner, Bernanke et al know who should survive and who shouldn’t? The trouble with degenerate, state-managed capitalism is that it lets politicians and policy makers decide these things. Why should a bank survive if it can’t weather a foreseeable storm? Why should an automaker stay in business if it can’t make cars at a profit? Why can’t willing buyers and sellers decide these things for themselves? That’s just how it’s supposed to work. It blows up gusts from time to time and sinks the unworthy and the unprepared. That’s what the deep, blue sea was made for.
But the interveners are neither poets nor philosophers. They’re men of action. In Japan, there is little room for more fiscal stimulus. Japan’s government already owes twice the nation’s GDP. In Europe, the big spenders cannot overcome opposition from the tightwad Germans. The Americans are blocked by politics too. Voters rarely have any idea what is going on. But the TARP plan – which just expired on Sunday – was seen for what it was, a payoff to the bankers at everyone else’s expense.
“You can take your stimulus and shove it,” is the message being sent to the US Congress.
Not only that, the paralysis in Congress could prevent an extension of Bush’s tax cuts. This will be the equivalent of raising taxes during a recession, a repeat of the mistake of 1937, when Roosevelt’s pact with the devil led to higher taxes, more regulation and trade barriers.
Everyone claims to favor the democratic process, but few people want to abide the decisions of the yahoo masses. Fewer still will put up with an honest economy. So, it’s up to the central bankers. Bonzai!
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
Would US now repeats the WW II Japanese drama?
I think we should skip all the interventions in the price of money. Instead, why not follow the lead of the Russians after the collapse of the Soviet Union: –”whatever home, house, or apartment you now occupy, which hitherto was Soviet state property, is now yours free and clear”. really wouldn’t be much different here, the government owns most of the mortgages. Simply handing over title would eliminate all that debt dragging on the economy. Sure, there would be some privately held mortgage owners who would get skewered on the deal, but does anyone really sympathize with them? Hardly. Most of them have so much money stashed in the Cayman Islands its not like it will affect their standard of living.
To get our economy on the right track, we need a decisive President who will do the right thing by reducing our bloated government by 50%…some lay offs but mostly by attrition.
Close all the US Military basis overseas and bring our troops home. We must stop being the policeman of the world, let the UN do their job of
We must stop spending and start paying off our National Debt before we go bankrupt, when our revenues exceed our interest payment, our Republic will go Kaput, and that will reverberate around the world.
We need a business man in the White House…
Leo…Santa Rosa, Ca.
The US is already bankrupt. We’re just waiting for another liquidity crisis.
The Soviet Collapse, though it did give folks their houses, created a litany of other problems. When you screw creditors people don’t line up to lend more money, at least not right away. And when you don’t have access to credit lines life gets uncomfortable very quickly… like getting fuel at a gas station or food from a store (because the farmers cannot afford to bring you said food). Yikes.
The bankers, as always, play their masterful money game. Head I win, tail you lose. Get my drift?
The central banker, as always, play their masterful money game too. But of a different sort. Since they can create money out of zilch, what excite them is not having money. It’s power. The ultimate high is power over the elected officials. They continue to play the power game until the country collapses.
At which time the central banker just kick the can down to the next store. Which is always the brass store. The generals waiting quietly for their moment. Which comes when everybody is ready for revolution and civil war. And which the generals will offer to save the nation by avoiding in-fighting. and by engaging in foreign wars. An invasion here and there does wonders.
That, my friend, is the real Tojo Moment.
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