Japanese spirituality and how the French left misunderstands the 1930sby John Plender / January 20, 1998 / Leave a comment
You have to hand it to the Japanese-it takes genius for the world’s biggest creditor nation and largest capital exporter to plunge itself into a liquidity crisis. Yet after the collapse of Hokkaido Takushoku, Japan’s 10th largest bank, and the closure of Yamaichi Securities, depositors have been out in force demanding their money back. Taken together with the rash of competitive devaluations in southeast Asia, it looks suspiciously like a regional re-run of the 1930s, with the markets scenting a spillover into global deflation.
It is untrue that people learn nothing from history. The collective memory of central bankers has saved the world from more than one slump since the Depression. Even the Bank of Japan had the nous to open the monetary sluice gates and pump liquidity into the system after Yamaichi’s demise. Yet the real problem is one of solvency-the legacy of crippling bad debts left over from the 1980s, and the historical memory of the Japanese ministry of finance is selective. Officials are haunted by the huge budget deficits of the 1980s-which is why they crazily knocked recovery on the head with premature tax rises earlier this year.
The right prescription for an economy weighed down by debt is a determined fiscal expansion, combined with a scrap-and-build programme for the banking system to ensure that the weak cannot jeopardise the solvent. Asia’s wider problems require the IMF to propose tough structural reforms while recognising that its standard prescriptions for a single troubled country could prove dangerously deflationary when applied across a whole region.
Whether the IMF under Michel Camdessus is up to the challenge is a big question. The IMF’s instincts are inherently deflationist, as are those of French central bankers. As for the Japanese, a visiting dignitary from Tokyo told me last month that the key to getting a grip on the problem was a return to spirituality. Dear God! The odds are still on the world muddling through, but it can’t be done on a wing and a prayer. And come to think of it, if the real threat is deflation, is it helpful to have such a pronounced Scottish Presbyterian bias in the British Treasury team?
u u u
one senses blank incomprehension in Tony Blair’s government over the obtuseness of Lionel Jospin’s labour market policies. Why should a country suffering from high unemployment make hiring workers more expensive by cutting the working…