“I will not let anyone tell me that we must spend more money.”
– German Chancellor Angela Merkel
1. THE GREAT AMERICAN stimulus measures of 2008-2009 are such a dismal failure they would be farcical had they not increased the likelihood of a calamity.
2. The Obamateurs now in charge of the government and financial policy instill a sense of confidence in no one.
3. The American President recently submitted his first budget, which will wind up tripling the deficit.
4. But he quickly assured the public he would eventually cut that new deficit in half.
5. You do the math.
6. The American public already has.
7. A recent poll in the United States shows they’re opposed to further bailouts of financial institutions by a 45%-34% margin.
8. Other polls show they are opposed to bailouts of other industries by even greater numbers.
9. They have plenty of company.
10. Czech Prime Minister Mirek Topolanek told the European Parliament:
“All of these steps, these combinations and permanency, is the road to hell.”
“We need to read the history books and the lessons of history, and the biggest success of the (EU) is the refusal to go this way.”
12. He added:
“Americans will need liquidity to finance all their measures and they will balance this with the sale of their bonds but this will undermine the liquidity of the global financial market.”
13. Desmond Lachman, the former deputy director of the International Monetary Fund’s Policy and Review Department, compares the United States today to countries with emerging markets whose currencies collapsed, such as Russia, Thailand, Indonesia, Peru, and Argentina.
14. Mr. Lachman thinks this is one of the problems:
“In visits to Asian capitals during the region’s financial crisis in the late 1990s, I often heard Asian reformers such as Singapore’s Lee Kuan Yew or Japan’s Eisuke Sakakibara complain about how the incestuous relationship between governments and large Asian corporate conglomerates stymied real economic change.”
15. And is not the situation dire when the Chinese feel compelled to criticize the financial policies of a free market democracy?
16. To finance its stimulus (stimuli?), the U.S. government must sell more bonds and other debt instruments.
17. But signs have appeared that the interest of foreign investors in American debt is waning, as the bid/cover ratio (which compares the number of bids to the amount of notes sold) for the most recent offering of five-year notes slid from 2.21 at the last sale to 2.02, and they had to boost the interest they’ll pay to get that.
18. The investors have already lost interest in U.K. debt.
19. Last week, there weren’t enough bidders to purchase a tranche of “gilt-edged” 40-year British securities.
20. The global economic downturn means that Americans are importing fewer products, which in turn means that other countries will have fewer dollars to buy their debt.
21. That’s already happened with Brazil, and some are suggesting it might happen with Japan and China too.
22. If too few people buy treasuries, another solution would be to “monetize the debt”; i.e., print more money to cover it.
23. Say hello to inflation, everybody.
24. “You cannot spend your way out of a recession or borrow your way out of debt.”
25. Yet another byproduct of the stimulus measures will be white collar crime.
26. Said FBI Director Robert Mueller last week:
“The unprecedented level of financial resources committed by the federal government to combat the economic downturn will lead to an inevitable increase in economic crime and public corruption cases.”
27. Many in the United States are warning that the government shouldn’t deal with the problem in the same way the Japanese handled theirs in the 1990s.
28. So, how is Japan dealing with its own economic crisis today?
29. They’re using a unique one-two punch combination.
30. Not only are they imitating today’s American policies, they’re imitating their own policies from the 1990s!
31. Japanese Finance Minister Yosano Kaoru already pledged 10 trillion yen (US$ 104 billion) in stimulus measures last October.
32. Said Mr. Yosano:
“It’s not a situation where new fiscal spending of 2 to 3 trillion yen would be enough of a remedy.”
33. He added that a new package of 20 trillion yen would not be out of line.
34. Some financial wizards in Tokyo agree with him.
35. From Martin Schulz, a senior economist at Fujitsu Research Institute in Tokyo:
“The domestic economy might really tank and there’s basically no way out of it except if the government helps.”
36. Mr. Schulz thinks 10 trillion yen should do it, but some disagree.
37. From Junko Nishioka of RBS Securities Japan in Tokyo:
“The government should spend about 20 trillion yen at least to fill the supply-demand gap as Japan’s recession is deepening and facing the risk of falling back into deflation.”
38. “I’m bid 20 trillion, 20 trillion yen, do I hear 30, do I hear 30, anyone for 30?”
39. Yes–Japan Business Federation Chairman Mitarai Fujio and Japan Chamber of Commerce and Industry Chairman Okamura Tadashi are asking the government to spend 30 trillion yen.
40. Hey a few trillion here, a few trillion there, and pretty soon we’re talking real money!
41. All this talk about turning on the cash spigot is causing some members of the ruling Liberal Democratic Party to have visions of sugarplums—and pork—dancing in their heads.
42. They’re looking forward to turning back the clock to the era of LDP hegemony and its Third World-style partnership of the ruling party, the bureaucracy, and business and industry.
43. They’ll get to sprinkle money in rural areas and the cities, in the towns and on the beaches, to build more roads, more bridges, and even faster maglev trains.
44. Happy days are here again!
45. But the Tokyo financial wizards have more prudent suggestions.
46. Junko Nishioka thinks the government should spend the money on such green projects as alternative energy, solar panels, and hybrid cars.
47. Martin Schulz prefers low-tech solutions, such as insulating buildings, which he thinks will support employment.
48. He says:
“Money should be spent as fast and as efficiently as possible.”
49. The old saw that you learn something new every day is true.
50. I just learned that someone believes there are no internal contradictions in the suggestion that government spend money as fast and as efficiently as possible.
51. I also learned that someone seriously believed there was an entity on the face of the earth that could efficiently spend that much money, regardless of how fast they spent it.
52. Is there anyone who doesn’t think that most of that money is going to be wasted?
53. As for the rest of it, let’s not forget Robert Mueller’s warning of the funds that will wind up in some bureaucrat’s pocket.
54. Don’t worry, it’s only money of the mind.
55. Japan already has the highest ratio of public debt to GDP in the world at 170%
56. But the only way the government of Japan can come up with that kind of scratch is by selling more public debt.
57. Since overseas investors, including other nations, are unlikely to buy even more Japanese debt—they’ve got enough problems selling their own, remember—the Bank of Japan will have to buy it instead.
58. And where will they get the money?
59. They’ll print it!
60. Didn’t I say this was money of the mind?
61. At least Junko Nishioka won’t have to worry about deflation any more.
62. Say hello to inflation, Junko.
63. But perhaps we should consider the benefits of all those new solar panels, the unemployed financial industry executives taking temporary work to insulate buildings, and the rural roads, bridges, and maglev trains the legislators will figure out how to fund anyway.
64. The national legislators won’t be the only beneficiaries, of course.
65. Another group to benefit will be the Kasumigaseki bureaucracies, led by the Finance Ministry, who will get to think of creative new ways to spend all that money and further tighten their grip over the Japanese government.
66. In short, the primary beneficiaries of the new Japanese stimulus program will be the people who consider themselves the permanent governing class.
67. Happy days are here again!
68. But remember how FBI Director Mueller warned that public sector corruption was inevitable?
69. One manifestation of that corruption will be more slush funds, which are already endemic in Japanese government at both the national and local level.
70. We may not know how many buildings will wind up being insulated, but there will be more than enough softball uniforms and taxicab chits to go around for all of Japan’s public employees.
71. In 2001, former Foreign Minister Tanaka Makiko revealed that her ministry alone had a 20 million yen slush fund for internal staff parties.
72. At the same time, a total of 326 foreign ministry officials were disciplined for using more than $US 1.6 million of ministry money for personal expenses.
73. Another foreign ministry official was arrested on charges of defrauding the government of tens of thousands of dollars in phony hotel bills.
74. The Japanese consul general in Denver was fired for using government funds for personal items, including buying artwork for his collection.
75. And Ms. Tanaka dug all that up after only a few months in office!
76. Meanwhile, the Ministry of Internal Affairs and Communications released a survey of public-private sector partnerships and public corporations in Kyushu and Yamaguchi Prefecture last week revealing that local governments with a stake in those companies have indemnity contracts with financial institutions for 170 of them, 21 of which have debt exceeding their assets.
77. The debt covered by all these contracts amounts to 30.8 billion yen.
78. If those so-called Third Sector companies go bankrupt, the losses will have to be covered by funds from the general accounts of the local governments.
79. Heck, with the number of children plummeting every year, we didn’t need all those primary schools anyway.
80. If Mr. Yosano wants to spend the public’s money to benefit the economy, perhaps he could hire outside auditors—preferably from outside the country—to turn Kasumigaseki upside down, shake it by its heels, and see how much cash falls out.
81. What else could be done instead of printing more money of the mind?
82. One solution would be to slash taxes, downsize the government, and put the money back in the hands of the people.
83. Will the people of Japan suffer without the Sports in the Ministry of Education, Culture, Sports, Science and Technology; the Tourism in the Ministry of Land, Infrastructure, Transport, and Tourism; the Okinawa and Disaster Management parts of the Ministry for Okinawa, Northern Territories Affairs and Disaster Management (the Foreign Ministry can handle the Northern Territories); the entire Ministry of Science and Technology Policy and Food Safety; the entire Ministry of Consumer Affairs; or the entire Ministry of Social Affairs and Gender Equality?
84. However did they manage without them?
85. Author and college professor Ikeda Nobuo thinks the Ministry of Agriculture, Forestry, and Fisheries could be eliminated entirely, and explains how in Japanese here.
86. That ministry has an annual budget of three trillion yen.
87. If you want a stimulus, put that money back in the hands of the people and watch how stimulated they get.
88. Another solution would be to take an axe to Japan’s effective corporate tax rate of 40%, one of the highest in the world.
89. There’s no such thing as a corporate tax anyway.
90. Corporations are really tax collectors instead of tax payers—their customers pay the taxes in the form of higher prices while the company collects the money with one hand and gives the government its cut with the other.
91. Years ago, some Japanese would complain about their fellow countrymen who had a monkey see, monkey do attitude when it came to all things American.
92. The monkeys are still around, but this time they’re not asking for peanuts.
93. The problem is that these monkeys are going to wind up holding an empty tin cup and banging it on the sidewalk…
94. …of the road to hell, as the Czech President observed.
95. “You cannot spend your way out of a recession or borrow your way out of debt.”
96. But that’s not going to stop them from trying, is it?