Category Archives: Japan

The Great American Heresy


More than a hundred years ago, the brilliant philosopher and father of modern psychology, William James, warned his American compatriots against “scientism”. James saw an increasing tendency to extend the then budding scientific method of controlled experiments in the physical sciences into intractable social and political problems. He warned it would not work, perhaps as much based on his psychological understanding as his philosophical logic, that is, as the old saying goes, people will be people.

Not too many listened to James then — or since. The old logical fault has taken on new vast proportions since the invention of the computer and the incredible ability to accumulate virtually limitless numbers as well as “soft” information. Now the digital revolution has given us the capacity for virtually unlimited mathematical calculations. Listen to that fountain of politically correct wisdom, National People’s Radio, almost any morning or afternoon, and you will hear another long dissertation on some social or political issue, usually foisted on us by the tenuratti, backed up by voluminous, if often irrelevant, statistics.

Nowhere has the disease taken root more than in the business schools, pickled there by management experts, often practitioners of what has been termed “the dismal science” but more accurately, the pseudoscience. A few years ago, I was flattered to be asked to “lecture” a class at the prestigious University of Virginia business school. A professor had somehow learned I had written a popular [not so popular as I would have wished] biography of Soichiro Honda, the Japanese investor and industrialist.

I sat in on the tailend of the professor’s presentation of Honda as “a case study”. I was worried the gentleman might fall off the edge of his lecture platform when, spelling out Honda’s success, writing an algebraic [?] formula across the blackboard, he began to run out of space. Luckily, he left the room after introducing me. I picked up the monologue, telling my young audience I would possibly be going off on a different tangent since I had written an anecdotal book. There were, I must say, a few knowing smirks, indicating I had underestimated the students if not the professors, in their search for networks of future acquaintanceship in these courses rather than “learning” in the classical sense.

I had had considerable exposure to the company and, luckily, despite corporate antagonism toward my project, through a shinseki [a “relative”, the nakahodo, the “in- between-person” who had arranged the marriage of Honda’s eldest son], direct exchanges with Honda, himself. I found Honda a mechanical genius, but no businessman. The evidence was how repeatedly the company had almost bankrupted when he went chasing sometimes valuable, sometimes moonbeam, inventions. [Honda, for example, was virtually the only automobile company to attempt its own automatic gear transmission, later to be abandoned.]

At a certain point in time, as the lawyers say, MITI [Ministry of International Trade and Industry], the all powerful Japanese bureaucracy then overseeing Japan, Inc., intervened. It anointed a production line genius from the wartime Hayakawa aircraft to take over Honda’s “business side”. The rest, as they say, is history. The gentleman in question was an eccentric; e.g., a devoted Wagner fan he annually took a troop of young men to the Bayreuth Festival. But sitting through several drunken evenings in his little gazebo in a palatial house garden hidden away in Tokyo’s Akasakimits’kei neighborhood, I learned many Honda “proprietary” secrets. [I have been amused to see him quoted extensively in more recent books on Honda; he died shortly after our meetings. But then Ouija boards are a common utility in the book writing profession.]

All this was recalled when The Financial Times recently warned of new problems despite all the huffing and puffing over Dodd-Frank , the latest attempted reform of Wall Street by two legislators too associated with political corruption. The FT said “xxx the vast $6,000 billion over-the-counter derivatives market risks being undermined by potential ‘data caps’. xxx”  Hmmm. A good, old and close friend, despite being an economics professor but luckily not in a business school, tells me: “”xxx These models tend to ‘work’ until there is some kind of structural shift. xxx” English? These models tend to work until they don’t work.” Hmmm.

Dr. James, here we go: 2007-08 here we come [again]!

sws-08-26-11

Armagedon? Not exactly


We live in a media world constantly trumpeting something happening for the first time ever, the biggest, the best or the worst something happening or predicted, or something that inevitably will happen if something isn’t done. Often that simply doesn’t square with the facts or history. 

The Obama Administration, fighting for a second life after 2011, has joined this Hallelujah chorus to frighten the electorate into accepting a bad bargain: a short-term bailout with more taxes, bigger deficits — and more government. It gets widespread support — from “special interests” [yours and mine] to the bond rating agencies who failed so miserably in the 2007-08 financial crisis. Mind you, those agencies should also be warning us the outlook for American government securities is grim if Washington doesn’t surgically go after its runaway spending and unsustainable deficits. [Shame on old friend Stuart Varmey for not making that clear on Fox News during one of Bill O’Reilly’s tantrums.]

As I write facing a new debt ceiling deadline, one recalls Sec. of Treasury Timothy Geithner has cried wolf too many times adding further confusion. It’s certainly legitimate to speculate whether Treasury could – as many experts insist – scrape together enough cash to pay creditors for a few more weeks while longer term solutions were put in place.

True enough, the U.S. government has never defaulted on “the good faith and credit of the U.S.”. Were it to do so, all its vast implications are probably unfathomable. That it would not be good for individual citizens is obvious. Still, it is quite another matter to call it the end of the world.

While it is true the U.S. has never defaulted per se, something pretty close came about not so long ago as financial history goes. By 1970, Washington had got itself into a fix, in many ways similar to today’s. The dollar was greatly overvalued with bills coming due for Pres. Lyndon B. Johnson‘s Great Society and the Vietnam War. International balance of payments tilted with inflexible fixed currency rates established by the 1944 Bretton Woods Agreement. Inflation threatened.

On August 15, 1971, President Richard .M. Nixon unilaterally repeat unilaterally suspended theoretical convertibility of the dollar into gold, set a new lower rate, and demanded our trading partners raise their own currencies. In December 1971 they gathered at the Smithsonian to sign on; there wasn’t a lot they could do. By the way, it didn’t work: two years later, Washington again realigned gold and the world set off on fluctuating currencies tied to the dollar which it has tried to maintain ever since.

Mind you, yes, of course, it was a different world. Europe and Japan had recovered from World War II but weren’t admitting it. Japan was running up huge dollar holdings, sucking away American manufacturing jobs, much as China today. But the U.S. was seen as cock of the walk with strong – if sometimes knuckle-headed – leadership. [That was long before President Barack Obama spent two years “leading from behind”, denigrating America’s past, its uniqueness and its leadership role.] Pres. Nixon and his president-aspirant Sec. of Treasury, blustering Big John Connally, slapped on wage and price controls, a calamity abandoned three years later when inflation hit double digits. But, in effect, “the Nixon Shocku” [as the Japanese who got caught flat-footed called it] had chopped its creditors off at the ankles.

Perhaps the most significant difference, among many, from those days is a world crisis in every theater. The Euro, a figment of Brussels bureaucrats’ imagination without EU unified fiscal and monetary policy control, is on the ropes. Sterling is in equally bad straights with the UK trying to dig out of more debt than any other industrial country. The Japanese, borrowing yen from themselves with abandon for a quarter of a century, now face mammoth new reconstruction with the world’s fastest ageing population. China, with its deus ex machina of unlimited infrastructure expansion, subsidized exports and a walled-in market, is slamming on the yuan brakes against incipient inflation. India faces runaway inflation with its rupee investors taking their capital elsewhere because they don’t see massive reform of a former Soviet-bent East IndiaCo. system. Mideast sheikhs are squandering their [and our] petrobillions in the same old way.

Things look disastrous in Washington, but bottom line: compared to whom?

sws-07-22-11

Charlie Chaplin’s suit?


The geopolitical question of the hour: is there a tripwire that will tie together a series of regional crises bringing on another 2007-08 worldwide economic disaster?

Lehman Brothers’ collapse dramatized how enhanced interconnections can tumble through the new world economy with domino effect. But if the world finance mavim know a seminal interrelation of our several bubbling crises, they are not telling us. Meanwhile, the minitheaters percolate:

Europe –There’s growing consensus Greece’s economic collapse is leading to a restructuring of the European Union’s finances with more than 20% of the world’s gross product. Shooting the messenger – the growing attacks on rating agencies which, indeed, are feeding debilitating increases in the cost of debt – doesn’t solve the problem nor do complicated if band-aid solutions. Nor, does it seem likely to this observer, creation of a Eurobond market to absorb growing debt would automatically bring about inspired, problem-solving central European fiscal and monetary direction. [It didn’t with creation of the Euro “common currency”.]

The U.S. – However much the Obama Administration’s stimulus program staved off an even worse crisis – to be argued until the end of the economists’ time, not soon contrary to John Maynard Keynes hopeful prediction the profession would die out – it has run out its string. Public opinion demands curbing deficit spending. But how against pressures of “special interests” [yours’ always are, mine are heaven blessed] is a conundrum taxing the American political system. It‘s a time when parliamentary government – with its ability to bring down a cabinet’s failed strategy instantaneously – is envied. Instead, more than a year’s political mudslinging appears inevitably producing near paralysis. Meanwhile despite widespread denials – including fudging with inventions like “core inflation” – higher prices could couple with stubborn underdemployment/unemployment and an unresolved housing bubble for increasing misery.

China – The cracks, long seen by the few who questioned sustainability of the miracle of “the world’s factory”, are widening. Beijing central planners – despite their rationale only rapid growth could legitimate “Communism with Chinese characteristics” by providing jobs and stability — have curbed unlimited infrastructure expansion which with now slowing exports was the engine of growth. “Creative accounting” takes on new meaning for government banks hiding “non-performing loans” in new set-aside organs now making their own bad loans. Beijing’s inability to “feed” local Party hacks leads them to “squeeze” workers and farmers in turn leading to growing violence. Inflation, especially food where most Chinese live, grows despite monetary devices borrowed from Western systems largely ineffective on what still is a Soviet skeleton.

Japan – The world’s third largest economic power drifts, mysteriously bereft of political leadership, caricatured in its inability to address the destruction of the earthquake-tsunami with characteristic “Yamato Damishi” [fortitude]. In Japan’s hot, muggy summer, only 19 of 54 reactors are operating in the face of anti-nuclear sentiment. With more to shut down, cutbacks of 15% already haunt large electricity customers and boosts expensive fossil fuel imports. Consumer confidence falls to record lows, ominous for Japan’s rapidly ageing population. Government debt, already the world’s highest ratio at 200% of GDP, will rise as Tokyo borrows $100 billion to rebuild and GDP shrinks. Luckily, Tokyo borrows at home at floor-scraping 1.5%. But, Japan, too, has its echo of the American argument: Economy Minister Kaoru Yosano opposes Tokyo selling itself bonds as the Fed and Treasury have done, warning resulting higher finance charges would hit Japanese banks.

But how does it all connect? We saw how Japan’s disaster put a crimp in the manufacturing supply chain from Shanghai to Detroit. But, for example, what call have German and other European banks on their U.S. colleagues if Greece defaults? Japan, which has been lending the world $175 billion annually in investment capital, is out of that business. Nobody wants to talk about the impact on Spain [20% of the EU GDP] if Greece [3% of the EU GDP], followed by Portugal and perhaps Ireland, “goes”. What will that do to Latin America where Spanish banks have invested heavily as the Brazilian boom simultaneously now threatens to go “bust”? Australia’s roaring dollar is already feeling Chinese cutbacks as will all commodities producers, perhaps even the Mideast petrosheikhs.

In one of his serio-comic sequences, Charlie Chaplin’s little tramp starts pulling a thread from his crumpled suit. Before long, his whole miserable costume dissolves. Is there that kind of loose thread here?

sws-07-08-11

Now that’s what you call heavy lifting!


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The Japan Times Printer Friendly Articles

Support Japan Bra unveiled

Kyodo

Major lingerie maker Triumph International Japan Ltd. said Wednesday it has created a special underwear set featuring messages of support sent from the offices of its group companies around the world to lift the spirits of disaster-hit Japan.

The Japan Times Printer Friendly Articles

Support Japan Bra unveiled

Kyodo

Major lingerie maker Triumph International Japan Ltd. said Wednesday it has created a special underwear set featuring messages of support sent from the offices of its group companies around the world to lift the spirits of disaster-hit Japan.

New heroes in Japan


At a time when the MSM almost exults in expressions of anti-Americanism around the world, virtually neglected is the welcome and appreciation given the large-scale participation of U.S. military and non-military in the Japanese earthquake-tsunami rescue and cleanup operations. One sad if somewhat bitter sweet story is of an American English-language teacher in Miyagi prefecture where the event took its heaviest toll.<a href="http://

A world turned inside out


American prestige is now dependent on the swift feet and hard heads of its handicapped soccer team trying to pull off a “U-S-A/U-S-A” miracle in South Africa.  Certainly, nothing substantial is likely to come out of the G20 or a subsequent meeting of the Big Boys, the G8, groupings of the world’s most powerful economies and hangers-on, convened as we go to press. That’s in no small part because the Obama Administration has abdicated the U.S. historic post-World War II economic leadership role as it pursues what the world sees as foolish economic policy.

Washington is, of course, too crises-ridden to take new international economic initiatives – or, in fact, to follow up old ones. The Obama Administration strategy which aims to produce recovery through pump-priming and government-subsidized alternative energy gets short shrift from its Western partners and Japan. They want to set their — and especially everyone else’s — budgets in order. Add that to the failure of Pres.Obama’s pre-conference letter to Beijing, again wheedling China to end currency manipulation. The Administration’s pleading – backed by a protectionist revolt among Congressional Democrats – was been met with confused official and semi-official signals, but in the end, stonewalling. Nor can America’s allies ignore Washington’s refusal to waive the Jones Act, purportedly protecting maritme labor and the desiccated U.S. ship industry, to welcome European skimmers and other help in the BP spill.

On the outer fringes of the world economy, Beijing reflects leadership and policy conflicts as confused if more secret than those in Washington. The Chinese first “vowed” [according to fawning media] to take action to permit its wildly undervalued currency to rise. But then after several days trading, it became obvious Beijing would not — and probably could not — take a disastrous short-term route to help rebalance the world’s currencies. [Beijing’s latest announcement of reduced export subsidies is only the reflection of growing inventories and saturated foreign markets.]

Meanwhile, longer term speculation on eventual massive Chinese reevaluation grows – evidenced by China’s real estate bubble and a casino stock market. Government infrastructure expansion — enough for the next century — absorbing most of the “stimulus” has reached its limits. All of these problems are intensified by all pervasive corruption. [Beijing claims more than 94 billion yuan, $14 billion, in misappropriated public funds was recovered from some 800 officials last year alone.]

Furthermore, as Pres. Obama presses a more and more reluctant Congress to pursue a policy that Maynard Lord Keynes would never have condoned despite the Greek chorus invoking his name, Europe’s relatively solid citizen, Germany, declines. Berlin will not dance with a partner carried away on the strains of unlimited expenditures for the public sector.Germany, itself, is hoisted on a dilemma: its export-driven economy has depended on pushing out goods for Euros which its customers, it turns out, had not actually earned. Greece is only the first of several Euro currency economies who will  come a cropper over drunken sailor debt.

Even were Chancellor Angela Merkel to agree to pick up the burden, German taxpayers would not. And the Chancellor already has her hands full with a complicated political crisis over electing a new president. That’s why the Chinese are said to be worried more about the rapidly the deteriorating Euro than their vast hoard of devaluing dollars.

The only “bright spot” is with Britain’s new Prime Minister, David Cameron, like a proper Scotsman taking a meat cleaver to public expenditures. Throwing off suspicions he was “conservative light”, “a Rockefeller Republican”, Cameron has cut public expenditure 25% across the board. But will his Liberal Democrat coalition partners sweat it out long enough for the anticipated long-term results to come home?

With each passing week, world economic problems become more acute. Latest statistics show the bulk of recent international borrowing has been to prop up the Euro, not only against the Greek bailout but anticipating similar credit problems with the whole outer ring of the European Community. It was not for private sector recovery — and jobs, jobs, jobs. In Asia, Beijing’s East Asian partners depend on Chinese assembly operations using slave labor and increasing quantities of imported energy to cling to their export markets. It’s no wonder they have been hit by a wave of “illegal”, unprecedented strikes which Beijing leadership has tried to ignore – perhaps as long as they are foreign-owned firms?

Japan, South Korea and Taiwan, like China, are export-led. [Tokyo’s autos and other high tech exports have come back after a second drop last year; $60 billion in May, normally accounting for 10% of the gross domestic product for the world’s second economy.] For different reasons none of these yesterday’s vaunted Tigers are capable of quickly making the dramatic, painful and complex changeover all have promised: to expand their domestic markets reducing reliance on exports to the West. With each passing day, however, it becomes more and more clear that recovery [and return of once halcyon exports markets] in the U.S. and the EU is a lengthening process – and, indeed, the danger of the industrial economies slipping back into recession again is ever present.

sws-06-25-10

“Whither Japan?” at issue


Japan is dawdling.

That’s bad news for Asia, the world, and particularly the U.S. which has depended on Japan as the keystone for Asian stability and progress for a half century. Far from most of the other high income countries, the engenuity of 128 million Japanese has made their rocky little, resource-poor islands Asia’s brightest spot. But the incredible tidiness and cleanliness visitors see – always a shocker for other Asians – and seeming prosperity masks a deep malaise. And for the moment at least, political leadership seems stymied.

When a Chinese squadron recently ploughed into the Pacific through Japan’s Ryuku archipelago without so much as a salute, Tokyo got another signal of its growing vulnerability. A similar wake-up call came earlier when North Korea fired an unannounced missile over its islands in 2008.

Japan faces complex issues with both its Chinese and Koreans neighbors. China is now its largest trading partner and a platform for reexport, exploiting China’s cheap labor. Tokyo also still has it old dream of one day opening huge Chinese internal markets.

But as every Japanese government makes new professions of improving relations, Beijing is always ready to exploit the long history of Japanese aggression despite its omnipresent modeling on Japanese industrialization. And hovering over the East Asian landscape is China’s rapidly expanding military and its officers’ growing tough talk.

Flying in the face of Beijing’s recent $10 billion in credits to Pyongyang, Tokyo has just reimposed sanctions against North Korea. They are intended to clean up Pyongyang’s organized crime in Japan as well as apply pressure to end North Korea’s weapons proliferation and force a settlement of North Korean kidnappings of Japanese nationals.

But Japan’s unassimilated million Korean ethnics – some brought as wartime slave labor – bedevil already torturous international strategy. Tentative moves to give citizenship to these “Zainichi” runs into flak from Japanese traditionalists. Still, their isolation produces anomalies such as schools operating on CoU.S.-Japan Mutual Defgense mmunist North Korean curriculum. It also suggests current feeble attempts to supplement the diminishing young labor pool through emigration will be extremely difficult if not doomed.

Beijing’s latest naval maneuver also dramatized the principle issue now badgering Washington-Tokyo relations. Although both sides continually claim the U.S.-Japan Mutual Defense Treaty as bedrock, growing collaboration is hindered by failure to implement the torturously negotiated 2006 agreement for redeployment of American forces. Reducing U.S. Marines in Okinawa [Ruyukus] with a buildup on American Guam has snagged with local political friction reaching into Tokyo’s governing coalition.

That government of Prime Minister Yukio Hatoyama’s Democratic Party of Japan [DPJ] is in trouble  So far Hatoyama has not found the Okinawa solution which satisfies Americans and Okinawans he promised by May 31st. With polls dropping despite the DPJ’s landslide only last fall, Hatoyama no longer can look forward with certainty to winning in July a majority in the upper house. That could mean Hatoyama may have to give way to one of his rivals.

But more important, what some had hoped was a new Japanese political realignment with two major parties of differing ideological bent doesn’t seem to be happening. The Liberal Democrat Party, ruling for 50 years, is fracturing and the DPJ is no nearer sorting out its garden variety of contradictions.

All this is being played out in a worsening economy. Exports have recovered but domestic consumption stagnates among a population ageing more rapidly than any in the industrial world. Decades of pump priming through infrastructure projects is limited by plummeting tax revenues and soaring welfare costs. Based on fiscal 2010’s nominal gross national product of 475 trillion yen ($5.13 trillion), Japan’s debt is estimated to reach around 950 trillion yen – or roughly 7.5 million yen [$81,000] per person. Standard & Poor’s warned it might cut ratings on government bonds, which could raise borrowing costs. That could mean the end of internal borrowing to fund its debt – not exactly Greece, but arguing for new strategies.

This century opened with what seemed a consensus under the immensely popular Prime Minister Junichiro Koizumi to abandon for liberalization “the Japan model”.  Koizumi, fighting vested interests and those clinging to what had been the world’s most successful model for modernization of a non-European society, started disbanding Japanese postal savings. The world’s largest pool of capital, it fed semi-government banks for targeted economic expansion. But bursting of the Japanese bubble economy in the early 90s finally demonstrated the system had outlived its usefulness. Koizumi set out to create a real capital market.

Now old opponents and new voices inspired by the near demise of “the Washington consensus” – privatization, markets, democracy – are turning the clock back. The DPJ has put a minister who opposed Koizumi’s reforms in charge of the partially disassembled postal group. And the government has just moved to increase the maximum deposit limit.

This return to bureaucratic management could vitiate a new wave of Japanese investors moving out into international markets. And it could wind up being another example of risky intra-government borrowing, not unknown in the U.S. and Western Europe, in an attempt to stem the effects of the collapse of credit and the worldwide recession.

sws-04-16-10