Still, it provides more key background to understanding why US hegemony goes way beyond bombing campaigns. Again, check out the entire article online if you are a serious scholar or journalist.
http://www.gsm.cornell.edu/faculty/mcadams/MiazowaMeeting.htm
Miazowa Meeting
As the above materials attest, I've long been an admirer of the achievements of Japan's Industrial Policy. By the early 90s however, it was clear that something fundamental was going wrong in the Japanese economy.
On the NBA-Japan trip in 1994, I had the opportunity to meet for an hour-and-a-half with Kiichi Miazowa, the former Finance Minster and later Prime Minister of Japan. I had come upon him and his reputation back in the 1960s. He had been head of the Economic Planning Agency (EPA), and clearly was the source of much of the information written by Norman MacRae in the Economist at that time. To understand the dynamics of the transition of the Japanese economy from enormous vitality to stagnation, one needed to see the world through the eyes of Miazowa.
Beginning in 1985 with the Plaza Accords, Japan had accepted international pressure to raise its exchange rates. Implicit in its response was a disadvantage to Japanese export firms in International markets. American policy-makers had consistently misunderstood the dynamics of the interactions between Japanese industry and its Government in relation and had assumed that US trade deficits with Japan would be eroded away by a realigned Japanese exchange rate. Clearly that did not occur, and has not occurred. What did occur, however, was enormous pressure for efficiency among Japanese manufacturers of internationally traded products such as automobiles and electronics. But Japanese industry needed a little help, too.
As Miazowa stated, "As Finance Minister, I had to give Japanese industry something to permit it to continue to develop despite an unfavorable exchange rate. What we effectively provided was domestic borrowing at zero, and sometimes negative, interest rates." He accepted responsibility for the "Japanese bubble; so, I started the bubble," he said.
Clearly, there were enormous unanticipated consequences for Japan and the world as the result of a zero-cost of capital to Japanese manufacturers. This permitted Japanese firms and individuals to take advantage of the new, stronger yen plus the ability to borrow at zero cost, to purchase real assets around the world. In many countries, this led to very negative public response, as we all can recall from the reactions to Japanese purchase of Rockefeller Center and other U.S. national icons.
The Keiretsu and the Bubble
Given its Keiretsu structure, the Japanese financial system was ideally situated to foster the Bubble. An industrial company could borrow from its sister-Keiretsu bank, purchase land, use the land as security for the purchase of securities of sister-Keiretsu firms, pledge those securities to the Keiretsu bank as collateral for new loans to continue the process. The Japanese stock market spun out of control, reaching unprecedented and unrealistic levels. Japanese land prices exploded. Japan was awash with liquid funds.
The unintended consequence in Japan's domestic economy was the cycle of borrowing and purchasing that resulted in runaway asset prices. In turn this resulted in phenomenal valuation of a few square feet in central Tokyo to be in excess of the value of all of the real estate in North America.
The Turn-Around
For Japan's ministries, there was an even more ominous, unanticipated consequence of all the money that was easily available. The consequence of greatest import was an erosion of Japanese Ministries', especially the Ministry of Finance (MOF)'s, control over economic and financial policies.
As has come to be well-known, MOF "called the tune" for development of the Japanese economy during the entire post-war period. It worked in close harmony with the Ministry of Trade and Industry (MITI), and the Bank of Japan (BOJ) in master-minding the rapid transformation of Japan into a world class economy. Policies and legislation were developed within the Ministries and essentially rubber-stamped by the Japanese politicians in the Diet and Cabinet.
What began to emerge was resistance by Japanese businesses to the dictates of the Ministries. A characature of their response was, "I don't have to listen to you in MOF, I have 'bought' the key Government officials, so you can't touch me."
MOF perceived the clear threat to its power. It responded with a rapid tightening of the money supply that forced the "bubble" to burst.
Once again, unintended consequences abound. Japan was and is no longer awash in money. But simultaneously banks found themselves with non-performing loans and an inability to clear their accounts of assets of rapidly falling value, both from the stock market and the real estate markets.
As is widely recognized, Miazawa is a very sophisticated statesman. Thus he was not at all taken aback when I suggested that Japan's Government needed to "Declare national bankruptcy." By this I meant and he understood that the financial books of the country needed to be cleared of the non-performing assets. Further, the financial institutions would need to be reconstituted on a sound financial basis.
I tried to contrast what I referred to as the Japanese "financial economy" to its "real economy." Japan's manufacturing capabilities remained formidable, given the high levels of "forced-draft" investment that had been made in all the key export-oriented industries over the five years immediately prior. The financial economy, on the other hand, was effectively bankrupt. Yet the policies of MOF permitted financial institutions to paper-over their real losses.
What was necessary was for the real losses to be recognized. At the same time, it was highly likely that those losses could have been balanced by the real gains in the values of the assets in the real estate market and the stock market that had accrued over Japan's post-war history prior to the commencement of the bubble.
This latter possibility had been laid-out in detail at the Industrial Bank of Japan (IBJ) in one of the most penetrating analyses that I've had the good fortune to attend. The analysis of a key player at IBJ showed that at a NIKKI index level of 15 thousand, it was highly likely that a true balance would be achieved.
Of course, the psychological impacts on a stock market are very difficult to forecast (as Yogi Berra says, "Especially when they are about the future"). The heavy "loss of face" to the Japanese financial institutions, were they to recognize their bubble-induced losses, were uncertain. On the positive side, however, the fact that Japan would be moving to clean up its financial problems and put its financial house in order, could lead to very positive impacts on stock market indices. Japan would be freed from the freezing of its real economy, caught in the grips of it's bankrupt financial economy. Miazowa did not respond.
History shows that Miazowa returned to top-level policy making in Japan and retains the post of Finance Minister today, yet no lasting resolution has been achieved for the financial economy of Japan. -----------end of article from above link
Posted by Charles Jannuzi