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A purely analytical perception...




Debtor Japan

Japan today is in debt in excess of 500 trillion Yen, which is in excess of the Country’s gross domestic product.  Thus, Japan is by far the biggest debtor nation in the world ([1]) and owes 114% of its annual gross domestic product, surpassing the United States, which owes only 60% of its GDP. ([2]) Japan’s debt service eats up approximately 22% of their budget while, thanks to a booming economy the United States has been able to pay its budget down a tad and has very optimistic expectations on this score for the future.


However, the Japanese have always shown an inner toughness that is best exemplified by their craving for Fugu. “Fugu is a blowfish, having an organ containing a toxin so deadly that only specially licensed chefs are allowed to prepare it” ([3]). Supposedly, it is the delicious flavor, not the macho thrill that draws consumers. Three hundred people a year are killed by this concoction and it is not a very pleasant way to go. The Fugu, paralyses the muscles while the victim is totally conscious, and gradually suffocates the epicurean by stopping all movement in the lungs. Imagine going to a trendy New York restaurant for fish and not knowing whether you are going to get out alive or not. It has been said that if you can handle Fugu, you can handle anything and we would certainly be the first to agree.


This is the same country, which discovered that Ginko Seeds are edible. This takes took an awful lot of courage because at best because the ripe fruit of the Ginko smell somewhat akin to that a drunk who has had too much to drink and has just thrown up all over himself. However, if you can get by the horrible stench, Ginko tastes great and is especially good roasted. Another tasty dish is mountain potato, “a root that is eaten raw and grated, often with raw tuna and a raw quail egg. When a mountain potato is grated, it secretes a translucent slime that is the exact consistency of mucus, yet is totally without flavor.” ([4]) Then there is the ever in demand, natto, which in reality means nothing more than fermented beans.


Strangely, even the Japanese think that natto is disgusting and in better company it has been described as vile. However, seaweed, which is regularly served up in Japan, has substantial nutritional value and is quite tasty. And the Japanese have a tendency of eating their food raw, there is nothing worse than Shiokara, probably squid which many have said tastes even worse than natto. In addition, special from Shimpei Yamashita of Stanford University is the diet of the first Japanese Women Astronaut. She is going to take along, “fish, newts, jellyfish, frog eggs, sea urchins, fruit flies and worms.” You can certainly see why she is so anxious to be lifted off for part unknown. Other great Japanese delicacies are Ungai, a fresh-water eel, Uni, urchin roe that are small eggs, which are said to taste like low tide if they are not fresh ([5]).


The global economic environment has grown more volatile in nearly every respect, including exchange rates, interest rates, and private capital flows.  While banks have gained economic importance in many developing countries, they haven’t expanded their capital base to reflect their increased size and the changed nature of the game.  Sadly, most lack expertise in evaluating credit risk, and state-run or state-influenced banks, often disregard it and are more interested in the political implications than sound banking practices.


“‘The new finance is like a highway’, says Deputy U. S. Treasury Secretary Lawrence Summers.  ‘It’s more efficient, It gets you to where you are going better, but the accidents are worse.’" as quoted in the Wall Street Journal (5/7/97). The Japanese and Thai debacles demonstrate that the accidents are particularly devastating when there is an insufficient separation among economic sectors and a lack of transparency within those sectors.  The Japanese system is built on symbiotic relationships among insurance, banking, service and manufacturing companies.  Interlocking directorates and credit arrangements make this system highly effective in good times and vulnerable at the infrastructure level in bad times.[6]


After World War II had ended, the then dominant Japanese industrial groups became commonly known as "keiretsu,” which translates as exactly that, "industrial groups.”  These were offshoots of the conglomerates known as "zaibatsu" (financial cliques) that predated the war and were composed of the likes of Mitsubishi, Sumitomo and Mitsui.  Each keiretsu-zaibatsu had as an integral element of its makeup, a trading company (sogo shosha) that was in reality, an intelligence-gathering network for the group. 


Until recently, competitors found it impossible to penetrate the defenses of the keiretsu.  Japanese post war success stories that emerged independently of the keiretsu-zaibatsu, such as Cannon, Honda and Sony that have emerged without being part of a keiretsu-zaibatsu have primarily succeeded overseas.  The keiretsu, successfully lobbied for protective legislation, and when that turned out not to be enough to keep local and foreign interlopers at bay they added collusion among members of their group to their arsenal of methods of keeping foreign interlopers off the playing field. The government, which had its own intimate relationship with the conglomerates, rarely raised an eyebrow.


Moreover, for many reasons, the Japanese Government would not be foolish enough to oppose the keiretsu simply because of the fact that they keep the taxes flowing into government coffers, and they have made Japan’s balance of payments the largest in the world.  Although this is changing dramatically, until recently, Japan also had the world's lowest unemployment rates (literally zero) and an enviable social benefits system.  Japanese interest rates have been negligible for years, and literally, the only way they can now decrease it is by having the lender pay instead of the borrower.[7] 


However, because of the lack of flexibility within the Japanese Central Banking System, although it did not work the way that it was intended, it was not only the regulations that related to the conglomerates that had became written in stone. There was no fiscal flexibility to reposition within the system. Social patterns such as education, extreme immobility, fanatical chauvinism, religious homogeneity and almost paranoid distrust also fell into an indelible social blueprint:  strong work ethic, massive savings rates, along with strong distrust of foreigners.


With both the business side of Japan’s equation and its social sector varying little over time, there was certainly no reason to change the government, and Japan remained virtually a one party system almost until the last decade.  Thus, it was expected that these three components would continue to work arm and arm to perpetuate national economic success.  Ultimately, however, Japan's complacency and inflexibly was its ruination.


When one of the members of a Japanese keiretsu has financial problems, the remainder of the consortium has historically been expected to come to its assistance.  Thus, if the problem became too substantial, the result could be catastrophic.  Japanese banks and insurance companies, however, are large holders for their own account of substantial amounts of real estate and all have massive securities portfolios.  Each in turn lends to others in both of these spheres.  A massive bank or insurance failure that results in the liquidation of these assets could jeopardize other consortia, thereby affecting the entire system.  Japan has indeed created the venue for the ultimate "domino effect.”


In another allied development which graphically illustrates how dramatic the economic transformations in Japan have been recently, the Tokyo Mutual Life Insurance Company which recently went down the tube, paid its usual visit to their friendly banker for supplementary funding, Daiwa Bank Ltd, who had been misguidedly keeping this sinking monolith alive for decades. Daiwa Bank determined that literally, the time had come where it was either them or us and intelligently came to the conclusion that it had enough and turned them down. This in turn led to the demise the highly regarded disaster, Tokyo Mutual.


This monolith with incomparably poor management was surviving in the usual fashion; do things the old fashion which we know doesn’t work, and when we run out of funds, go down the block and see our friendly banker to have him bail us out. While everyone knew that this was the way the system worked, nobody did anything about it because it had become part of an “old boy” network, which made everyone at the top comfortable. What happened in the insurance industry in Japan is probably a test case for disaster anywhere. As any normal insurance company will doing in adequately policing its portfolio is to invest the money it receives from policy holders into various activities that it believes will cause it to get a satisfactory return. The yardstick would be to have enough total income coming in to pay for the company’s overhead, to pay claims, and to show a profit.


However in spite of totally incompetent management, Tokyo Mutual Life Insurance didn’t do anything particularly different than any other company of its kind in Japan. Life was rather simple; Tokyo Mutual took in insurance premiums from its customers and used the funds to purchase stocks and bonds. In addition, it lent money for mortgages and dabbled in real estate for its portfolio account. This would have been an excellent scenario anywhere else in the world with the exception of Japan. Stocks, bonds and real estate have subsequently collapsed.


The Japanese stock market is currently at a 17 year low and if it was adjusted for inflation, it would be even more of a disaster. Bonds, which at one time, were paying satisfactory returns are now returning literally nothing as Japan is straining to get its economy humming again by dropping interest rates to near zero. The collapse in their real estate holdings has been even worse, because of the fact that many of the properties were mortgaged, most may be worth less than Tokyo’s equity, thanks to a moribund real estate market all over Japan. Thus, with stocks, bonds and real estate all in the tank, it is not at all surprising to see Tokyo Mutual go under. However, in spite of this awful scenario, at another point in time, Daiwa Bank still would have gone along with renewing and increasing the loan; not wanting to write their loans down to nothing. In Japan, this is no longer that time and there are no funds left for frivolous loans .


Tokyo Mutual is not at all an isolated case and all banks in Japan are facing similar problems with many of their clients. All major corporations in Japan, because of their interlocking relationships own stocks, bonds and real estate.  However, although this has created substantial blood letting, the fact is, that for the most part, these corporations are investing their own money in these varying instruments. In the case of the insurance companies, they are investing policyholder funds. Thus, as the value of the portfolio goes down, they are less able to pay claims creating a situation where the insurer is left with nothing but red ink on his balance sheet. While corporate Japan is an accident waiting to happen, a hit-and-run driver who has left the scene without leaving his name has already hit insurance Japan.


The problems of Japan’s companies and those of its banks are indeed intertwined. The banks have lent 353 trillion yen, or $2.79 trillion at current exchange rates, to Japanese companies according to data from the nation’s central bank. They have extended a further 8.4 trillion yen, or $66 billion, to local governments, most of which are effectively bankrupt. Of course, not all those loans are troubled, but the number of bad loans is increasing. And many are collateralized by assets whose values are now shrinking. Research by David Atkinson, a banking analyst at Goldman Sachs Japan, found 85 percent of problem loans are in the construction, retail, real estate and financial services sectors, which accounted for 62 percent of Japanese companies and 56.1 percent of all domestic loans, as of last September. At current earnings levels, Mr. Atkinson estimates that it would take those businesses 150 years to repay their loans.” ([8])


Japan is already virtually insolvent, in spite of their highly touted "balance of payments" surplus.  Its trade balance is not the great panacea that it is trumpeted to be, due to a highly bloated bureaucracy that has caused general and administrative expenses to escalate out of sight.  While the Japanese balance of payments runs substantially on the plus side, the margins that it generates are hopelessly thin.  Were the profits generated from exports to be subtracted from capital losses incurred in foreign investments in the last several years, the balance sheet would bleed blood red ink.


By contrast, the United States runs a significant deficit balance of payments, a substantial part of which is derived from inter-company transactions.  Were we to subtract these transactions from the deficit, the figure would amount to a fraction of a percent of Gross Domestic Product.  The profits that have resulted from these trades have been substantially in the black for recent memory.  Therefore, while we shudder each month when the trade figures are released, we must comprehend two things: first, the trade deficit in relation to the GDP is lower now than it has been for many years; second, the so-called deficit is a function of our purchases of low margin imported items and the our sale of exported high margin items.  (For example, let us say that pre-tax margins in the United States were 30% and in Japan 5%.  Let us say that we send Japan $5 billion in goods and they in turn send us $25 billion in goods.  In this example, the United States would show, in theory at least, a profit of $250,000 on the transaction). While this example was not meant to be statistically accurate, it is certainly more right than wrong.


When bank loans go sour in the United States, packages of similar assets are securitized and resold to the highest bidder.  The lending institution receives at least something for its non-performing assets and knowledgeable people who may be better equipped than the seller to make the package perform have the opportunity to earn money on it.  This, in fact, is how the U.S. Government solved the Savings and Loan crisis.  Uncle Sam sold enormous packages of savings and loan assets to developers, who frequently made the assets perform by investing more money in them.


 The same method of operation keeps the entire credit card industry churning along.  Every day, banks put their non-performing credit card debt out for bid.  Professional collection firms take on the bad accounts and historically have been able to generate a tidy profit for themselves.  Most importantly, the inventory moves.  Stale goods are not sitting on shelves waiting for some obscure buyer to walk in and say, “that is exactly what I have been looking for.”  Goods are sold not purchased in the real world, but in Japan, they lay in inventory getting moldy because the system is more interested in its own preservation than being fiscally responsible.   Here, seller holds a fire sale if need be, and the proceeds are used to buy more better inventory.


Not so in Japan.  When Goldman Sachs stepped up to the plate to buy non-performing Japanese debt, they got a nasty surprise in the form of the yakuza, (gangsters) which believe they have a vested interest in all Japanese property.  Unimaginably, there are some 81,000 Yakuza operating in Japan.  They are involved in "running drug-trafficking, gun-smuggling, prostitution and illegal real estate dealings.” [9] Even the United Nations is concerned about the yakuza, and Pino Arlacchi, executive director for drug control and crime prevention, indicated that "Japan has one of the most powerful criminal organizations in the world and an absolutely inadequate judicial structure to fight it."  


Goldman Sachs had entered Japan when the country let down some of its barriers to foreign companies doing business in that country. With a movement  toward financial transparency gaining ground, Goldman felt that the opportunities in Japan could be substantial because the term, restructuring was not even part of the Japanese language and Goldman had cut their teeth on its execution. Goldman's instincts were both right and wrong. They were correct in anticipating that the market was ripe for their wares but they were wrong in that the yakuza wasn't the only thing relative to the territory that they knew nothing about. In the United States as in most other countries, if something isn't against the law, it is OK. 


Goldman had always prided themselves in the United States for being very careful to both test the limits of the system and at the same time not bend the country's legal statutes. Their success in walking this tightrope has set them apart from most of their competitors. However, the rules of the game are vastly different in Japan. The attitude is here is that unless something is specifically allowed by the law it is illegal. Thus, Goldman's ability of finding gold lying unnoticed between the cracks nearly got them into a peck of trouble in Japan. When something has never been done that way before more often then not, there are no laws addressing the subject one way or the other. Thus, causing an aggressive firm, with new ideas would have substantial difficulty in assessing this virgin terrain. 

However, it is obvious that Goldman was just doing too well at its game and for the new kid on the block to show up the regulars was not considered in good taste in socially conscious Japan. On numerous occasions the firm has been investigated by the country's parliament for a number of matters such as slow response time to government inquiries, questionable short sales and conflicts of interest.  Many of these fishing expeditions were initiated at the behest of their competition or the political party out of office. Nevertheless, Goldman has gotten more than their fair share of business and has succeeded reasonably well against a stacked deck. But enough about Goldman Sachs and , back to our friends, the yakuza.


The yakuza deeply resent attempts to collect "their" loans.  This resentment expresses itself as, for example, acts of arson against the home of the head of the collection company.  Many feel that the Japanese banks have already dumped substantially all of their non-yakuza under-performing loans.  They are stuck with Mafia partners on a large part of what remains.  This makes a dreadful situation substantially worse and bodes ill for any short-term solution.


In fact, the situation is likely to get worse.  Under normal circumstances, higher interest rates will cause a currency to rise and lower interest rates will cause it to fall.  If Japan's currency were not freely trading, this would not have such an enormous effect.  However, the Yen is internationally re-evaluated every minute of the day in relation to all other currencies.  At any given time it is selling at approximately what people around the world believe that it is worth.  The Japanese Government cannot influence the Yen's movement unless it intervenes, that is, trades the Yen using central bank funds.  Assuming that intervention is only a temporary panacea, the only way to make a currency fall is lower interest rates and is a very difficult job when the rates in Japan are effectively already at zero. 


This rigidity is a major chink in Japan's ability to counter intense competition from the Pacific Rim in currencies that several years ago were devalued as much as fifty percent.  Japans more stable currency has permitted them to pay relatively reasonable prices for raw materials, which they import at a higher volume than any other country on earth (with the possible exception of China).  As an example, petroleum and construction products must all be imported, so this minor advantage evaporates when held up to the light of day.  The more that is produced the more that must be imported.


Because of the fact that Japanese companies work on historically narrow profit margins, enormous positive imbalances within the import export figures are totally misleading. The tighter the margins, the less competitive that the country becomes and even worse, the easy it is for country’s with depressed currencies to compete with the Japanese. Thus, additional disruptions such as what many see as the inevitable devaluation of the Chinese currency could well  cause a run on the Yen unless the system’s excesses, that have gone un-addressed for years within the Japanese Banking System are addressed.  Synthetically glossing over these serious problems as Japan has done in the past would be a blueprint for a national and potentially global monetary disaster.[10]


One day after an announcement by bank regulators that the country’s banking problems were fading, the Financial Times reported that Tokai Kogyo had become Japan’s first listed construction company to collapse after its banks refused to make it more loans.  This was not just an ordinary failure; it was the eighth largest bankruptcy filing in history of the country and the second largest in the construction industry.


Tokai Kogyo’s failure sent the stock market into retreat because it was a harbinger of billions of dollars in additional unreported non-performing loans.  Moreover, this case, more than others, reveals the frightening consequences of a continued cover-up by bank regulators.  The amount of money involved is staggering; other construction companies are in the same or worse financial situation[11], and Tokai Kogyo’s prime bank, Hokkaido Takushoku, already has one of the worst loan records in the country and may well be pushed over the brink.  Talk about transparency, inconceivably, after the failure was announced and the investigation begun, it turned out that this loan was not listed as in default at any of the many banks with which the company did business.  Japan has a controllable problem; yet, their banks do not even write off the massive bad debts of large defunct companies. 


“The heart of the mess, which developed nine years ago after real-estate prices collapsed, is the huge amount of bad debt that remains on lenders books.  Although banks have taken write-offs of $592 billion since 1992, new bum loans pop up as fast as they write off old ones because weak borrowers are going broke at a record pace.  And banks may have to pony up another $458 billion to cover shaky loans they haven’t provided for, estimates credit analyst Koyo Ozeki of Merrill Lynch & Company.  The result is that lenders still have more bad loans on their books than they did five years ago.  And when the banking czars go home next month, Japan will still have a bad-loan problem larger in scale than the old U.S. Savings and Loan crisis was.  Failing to fix it means the World’s second-largest economy is vulnerable to a destabilizing crisis, like a wave of financial-institution collapses here that had U.S. leaders sweating bullets two years ago.  But even without a collapse, the undercapitalized banks are cutting back on credit to promising young businesses, while keeping their weakest borrowers alive with new loans to avoid taking even-deeper write-offs.  This avoids short-term pain, but cripples Japan as a whole by allocating capital where it is least productive.”[12] 


One can only wonder how the Japanese Government will ever solve their other economic problems if they can’t get over the simple hurdle of letting businesses that are unprofitable close their doors.  The government of Japan has sent a loud, clear message that the system will remain in chaos and is totally averse to transparency.  A series of financial scandals and corporate bankruptcies have left a mark on both the economy and on the economic expectations of the Japanese.  Since World War II, a benevolent government employed and cared for its citizens.  Despite its glaring inconsistencies, the system appeared to be viable and trustworthy.


Eventually, however, inflated markets and bloated bureaucracies brought the Japanese economy down.  Interest rates on Japanese Government Securities hit record lows with the benchmark 10-year bond selling to yield 1.435%.  According the Wall Street Journal on May 4, 1998, new records were set all over the place.  "The new yield, which compares with 1.560% in early January, is by some estimates the lowest recorded globally in about 400 years, exceeded only by long-term government-bond yields in Europe during the early 17th century."  Fear promulgated increased savings and the excess of savings promulgated a very stagnant economy bordering on recession.


The International Institute for Management Development holds itself out as the global expert relative to national competitiveness.  In its 1998 survey, Japan almost dropped of the chart.  This was the bottom of a five-year slide from 2nd to 9th to 18th place.  The United States maintained the top slot along with Singapore and Hong Kong.  Parenthetically, Russia came in last out of the 46 countries analyzed, contested in its incompetence only by India and Brazil.  Corruption, bureaucracy and lack of reforms were the key drags on success, according to the World Competitiveness Yearbook


As Japanese companies began failing, the entire scenario began to receive larger than life publicity because the prosecutor's office began to make arrests of high-ranking Japanese officials.  As the number of arrests increased, the populace began to realize just how listless and corrupt the system had become.  Reality soon took a harsher tone.  There were layoffs, not only of temporary workers, but also of permanent workers, an economic sacrilege in the Japanese culture.  Not knowing whether they would continue to be employed, people began saving even more of their money, and Japanese domestic goods went un-purchased sending the economy into a recession.  As this vicious cycle spiraled out of control, The Japanese Government presented an economic package that, they believed would restore much of the former optimism.  The program, which was considered by many economists to be both too little and too late, was tinkered with and presented to Parliament repeatedly without becoming accepted. When the chips were down, Parliament found itself unable or unwilling to forge a compromise.


The number of people employed in Japan plunged and the number of people unemployed increased.  The ratio of jobs to applicants fell to its lowest point in over a decade.  Unemployment hit an all time record in February of 1998 and has continued to rise ever since.  Even these grim statistics did not accurately reflect reality.  Like our own unemployment figures, the Japanese do not even count the workers who have given up looking for a job. However, as bad as things are, they could always get worse. In order for the country to avoid bankruptcy, save their banks and become economically competitive again, the jobs sector will have to take the big hit, but without national unemployment insurance, this will cause substantial dislocation. “Andrew Smithers, Chairman of Smithers & Company, a fund management advisory service, goes so far as to argue that the effect of fundamental corporate restructuring would be so devastating that it is not a practical solution to banking problems. He contends that to achieve internationally competitive rates of return on their capital, Japanese companies would have to reduce employment costs by 40 percent.


Financial experts all over the globe began to worry about what was going to happen to Japan and what was the meaning of the dire statistics that were being produced. Whatever the data may be, the country’s unemployment is at its highest in measured history, raises are almost non-existent and overtime is a thing of the past.  Moreover, consumer confidence has been measured by pollsters to be at an all time low and as a result, Japanese capital spending is taking the proverbial gas pipe.  The incentive programs enacted by the government have only resulted in increased savings rates.  The people of Japan seem to believe that stormy seas are lying ahead and have battened down their financial hatches to better ride out the inevitable economic storm.  This year, as been the rule lately, Japan almost certainly faces another negative growth of its  GDP.  [13]


“That has given to the single biggest culprit in the growing debt problem: falling tax revenue.  The Ministry of Finance anticipates about 50 trillion Yen in tax receipts this year, 16% less than the government collected in 1991, when the economy began slowing.  That has led to increasingly large spending deficits: This year’s should top 8.5% of annual output.  The shortfall has been funded with borrowing, and the result is a ballooning debt.”


“In many ways it resembles the U.S. government’s during the 1980s – only far worse by many measures.  Evan at its peak, the U.S. debt never surpassed 100% of annual economic output.  Japan’s gross liabilities – what it owes without considering government assets, including local-government debt that the national government might have to honor – is 130% of annual output.”


“David Asher, an economist with the American Enterprise Institute in Washington, figures that the U.S. debt was about four times annual tax revenues at its peak, around 1992.  This year, Japan’s debt will be 15 times revenues, “It’s off the charts,” says Mr. Asher.” [14]


While Japan desperately attempts to buy time to heal the wounds caused by a sort of national hubris, it continues its global over-reaching, exporting economic chaos in the process.  Just as the schoolyard drug dealer "hooks" his victims with an inexpensive fix, certain Japanese elements of the global banking system create a dependency by making their product which is money, so inexpensive and so readily available that even though there may be no particular need for additional funds any particular point in time, this hyper-availability creates a borrower's euphoria that more is better than less and there will be no problem ultimately paying of the additional financing when the loan eventually comes due.  Japanese bankers, when they enter their lending frenzy stage, have created an almost Satanical environment where reason seems to fly in face of a potential "better-life" with almost no thought as to how this money will be repaid and the penalties for default.  However, this is the way success has been measured in Japan, by the gross number of loans made by lenders, not by the borrowers ability to repay.  The competitive bank feeding frenzy when egged on by domestic cutthroat competition, creates an environment where logic is thrown to the winds and the potential to make profits is ceded to sales, not profits.


The Bank for International Settlements reports that Japanese banks account for 34.7% of the $763.5 billion total bank lending in the Pacific Rim, excluding loans made within Japan, but including loans to quasi-public institutions.  Japanese banking institutions extended $37.5 billion and 53.4 percent of all foreign loans to Thailand, $22 billion and 39.6 percent of all foreign loans to Indonesia, and $87.5 billion and 42.2% of all foreign money lent to Hong Kong.  The exposure that they have admitted to in the Pacific Rim is close to $400 billion in economies and currencies that have already collapsed.  Countries without the resources to repay the Japanese will have to make good their debts in currencies that have depreciated substantially against both the yen and dollar, the two currencies in which repayment is usually made.  The vast disparities in valuation between the Asian currencies and the yen and dollar have resulted in steep increases in the principal and interest of these loans, making repayment virtually impossible.

[1] “Japan’s government debt as a percentage of national economic output is now the world’s largest, surpassing that of Italy.” Bill Spindle  The Wall Street Journal, December 11, 2000.

[2] An interesting aside is the fact that while the United States has seen it ratio of debt to GDP decline every year for seven years, the exact opposite has happened in Japan.

[3] Ray’s List of Weird and Disgusting Foods.

[4] Lewis Tepper, Ray’s List of Weird and Disgusting Foods.

[5] Mike Khaw.

[6] Keiretsu: system in which individual Japanese companies are linked together through interlocking share holdings. They favor each other in business dealing. In South Korea, the same relationship would be called chaebol.

[7] Although it is not well known, this happened in the United States for a short period during the thirties when people were becoming so concerned about banks going out of business that they wanted to own government securities under any conditions. During that period, the United States Government had what could be called a reverse interest rate on their bonds.

[8]  Japan’s Corporate Woes Compound Bank Troubles, Stephanie Strom, The New York Times, April 3, 2001.

[9] Reuters, 2/4/99.

[10] If Japan spends so much money defending collapsing domestic industries that the central government and large corporations are forced to liquidate international holdings to shore up their balance sheets, the price of U.S. Government Securities could collapse under the pressure of these unrelenting sales. We will at that time , truly have a global catastrophe. However, the American economy has burgeoned substantially and the Treasury  is no longer running a deficit, thus, this may longer be the worst thing that could happen.

[11] Japan continues to cut back on the massive public works projects, which these companies had become so dependent. That was brought to an abrupt halt when the Japanese Government was strongly advised by International Agencies that spending themselves into the black was the way to go, and once again, public works projects became the order of the day. Whatever theory is right or wrong does not matter, for the way the Japanese grant projects and monitor them only tends to allow political friends to pocket endless amounts of money and does little for the economy itself.

[12] The Wall Street Journal, Japan’s Massive Debt Bomb Ticks Ever Louder, Bill Spindle, December 11, 2000.

[13] “ Japan’s economic growth has averaged only a little better than 1.5% in the past decade, with several periods of prolonged contraction.” The Wall Street Journal, Japan’s Massive Debt Bomb Ticks Ever Louder, Bill Spindle, December 11, 2000.

[14] Ibid.





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