Krugman sad

[Henry C.K. Liu]

Americans are not capable of understand or advising Japan, becasue they think
its logical for the Japanese to help restore the collapsing American economic
empire.
The Japanese have a very different agenda which they never openly discuss with
Americans because they do not like confrontations culturally and certainly not
before the time is ripe.
Japan sees the current financial/economic crisis, which for Japan has been
building for more than a decade, as the gradual collapse of the post-war
American world order and an opportunity for Japan to become an independent power
again.  Japan is prepared to suffer and can afford to suffer the pain in order
to srike a better deal for itself in the coming new world order.
They see all the advice and prescriptions coming their way from America as
self-serving strategies that help America more than they help Japan.  And
Japanese officials will pay lip service to these advice and prescriptions and
pretend they are trying their best to follow them. The few Japanese initiatives
that Japan did propose had been categorically shot down by American officials
(one in the WB/IMF meeting in Hong Kong in October, 1997, and the latest one in
the G7 meeting in Bonn a few months ago.)
The Japanese government has a  strategy of absorbing from the general public the
pain caused by the economic stagnation.  For Japan, it can go on like this for
another decade, if the starting point after the collapse will put Japan on a
more even footing.  They are living on their debt interest income from America.
Americans think quarterly, Japan thinks in 50 year cycles.  That is why
Greenspan/Rubin don't trust them and resist Japanese leadership in Asian
affairs.
The US is opposed to Japanese leadership in ASEAN. Rubin turned down a US$100
billion rescue package for Asia in October 1997 during the World Bank/IMF
meeting in Hong Kong.
He also turned down a Japnese/EU proposal to stabilized the 3 currencies during
the G7 meeting in Bonn in January, 1999.

Summers, whose credibility has been irrevocably tarnished internationally by his
inept handling of the global financial crisis in the past two years, gave
another admonishing speech in Japan on February 26, 1999, warning Japan not to
depend on a weak yen to boost its economy, using worn-out slogans such as:
"the exchange rate cannot be a substitute for policy."

Its an amazing posture after Rubin/Summers turned down a Japanese/EU joint
proposal for a 3 currency stabilization regime at the G7 meeting in Bonn.  Being
a bit humbled by his own dismal record of first diagnosing the Asian crisis as
merely transient, then IMF off-the-shelve conditionalities as the only cure, and
finally non-intervention of free financial markets as a inviolable guiding
principle, Summers declared vaguely this time the Krugman cure:
"What I think is crucial is the recognition that the goal of price stabily
include the responsibility to avoid deflation."
He and Rubins declared only a month earlier that while free markets are not
perfect, all other forms intervention alternatives are worse.  He then went to
Japan and again asked the Japanese to intervene in their economy with
interventionist monetary policies.
Yukihiko Ikeda, a senior member of the ruling Liberal Democratic Party, reported
told the press: "Mr. Summers says, do this, do that.  But we will continue with
steps already in the works."
Japanese officials are generally of the opinion that reflationary policies would
further weaken the yen, due to pressure on the value of the yen from any
increased supply.  It may lead to further currency devaluations in other parts
of Asia.
The BOJ, Japan's central bank, thinks Krugman/Summers are offering snake oil
cures in the notion of fighting deflation with easing money supply.
Meanwhile, the prime minister of Malaysia is publicly urging Japan to dump its
US Treasry holding to show Asia's displeasure on US nationalistic globaliztion
policies.

With Rubin/Greenspan successfully resisting stabilized global exchange rates,
the effect of foreign governments printing money will not create inflation in
the US. It only means the Thai baht and the Brazilian real will fall in value
against the dollar.
Hyperinflation will not help Japan. Krugman is wrong. Because both the debtors
and creditors in Japan are Japanese and they both use yens.  There will be no
indirect debt forgiveness through inflation, only currency devaluation replacing
asset deflation,  At the end of the day, Japanese assets will end up being worth
less.  Deflation increases Japanese trade competitiveness without devaluing the
yen. Reflation will not solve any problem for Japan.  It only pushes the policy
ballon from a direction that currently catches the fancy of Krugman/Smmers.

American globalization created bubbles all over the world that burst in 1997.
The EU is on the way down.  The American domestic bubble continues to expand
from the "salutary" effect (Greenspan) of the global crises that started in
Asia.  Japan is waiting for the American bubble to burst from which to build a
more equal footing for Japan in the new economic order.  In the mean time, Japan
has a good excuse not to buy from America while building up a handsome trade
surplus. Rubin is right about one thing: America cannot be the sole engine for
the whole world economy.  It will have to overheat and blow a piston sooner or
later.  The Japanese know that all bubble burts, some only later.

Henry C.K. Liu

James Baird wrote:


> >
> > Dennis is correct.  The Japanese are playing a different game to
> reposition
> > themselves for the long haul while playing dumb with American advice.
> None of
> > the countries that followed American/IMF prescriptons are doing that well.
> >
> > Henry C.K. Liu
>
> But is that what Krugman is recommending?  He's spent the last six months
> saying that Japan needs a decent dose of inflation as a kick start - not
> exactly IMF orthodoxy.
>
> Jim Baird