10 September 2009

Japan: The Triumph of Crony Corporatism Over the Individual

Japanese officials sometimes have the endearing quality of coming out and openly saying what they are doing, or intend to do, in support of dodgy political and financial arrangements that would make a Wall Street banker blush, if they are still capable of such an act of modesty.

The former Japanese Central Banker Toshiro Muto said in March that '"in principle equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation."

Apparently in this case 'in principle' means 'theoretically, as is convenient," because Mr. Muto goes on to recommend that the Japanese Central Bank and government throw principles aside and buy stocks to support the Japanese banking cartel, which has crippled that country for the past fifteen to twenty years.

Notice how in his talk, Muto says that this arrangement will be temporary, until Japan can export its way out of its financial difficulties.

The challenge might be that most of the countries intend to 'export' their way out of their central bank created economic difficulties. China and India have already passed on the notion of becoming mass importers in the foreseeable future.

Perhaps the fate of the world rests on the ability of the nations of Africa and Polynesia to obtain the suitable credit ratings and FICO scores to become mass consumers with debts that can not possibly ever be repaid, à la mode Amerique? Is South America willing to once again mortgage its future for the sake of the financiers? I am sure that any appropriate arrangements can be made by the Central Banks with the target nations' ruling elites.

Japan is one of the worst examples of crony capitalism in the world. Its ruling LDP party has been a disgraceful example of serving private corporate interests, and acting without honor, honesty, and integrity.

Why doesn't the Bank of Japan just give the money to the banks, and let them buy stocks higher using leverage in the futures index markets like the Anglo-American crony capitalists? This is considered much more respectful of the market driven economy in the West.

"As the boom developed, the big men became more and more omnipotent in the popular or at least the speculative view... the big men decided to put the market up, and even some serious scholars have been inclined to think that a concerted move catalyzed this upsurge." J. K. Galbraith, The Great Crash of 1929

After all, as the industrialist, financier, and Democratic National Chairman John Jacob Raskob observed in August 1929, "Everybody ought to be rich." And so for a time they were, seemingly all powerful, invincible, as gods.

And the abyss swallowed them all. And then the descent into madness in Asia, Africa, the Mideast, and in Europe: and finally a world in flames. Monstrous actions done in the name of economic necessity, room for growth, fuel for industry, a new order for the ages, and at all times the will to power of the few. All the gods of greed.

And at last, the twilight of the gods. Götterdämmerung. Until the old gods rise again.

And so here we are, trembling at the veil.

(Note: this news piece below is not current. It is from earlier this year. It demonstrates the 'roots' of the rallies which we are seeing today in the world bourses. They are an illusion.)

Japan May Need to Buy Stocks, Ex-BOJ Deputy Muto Says

By Mayumi Otsuma

March 10 (Bloomberg) -- Former Bank of Japan Deputy Governor Toshiro Muto said the government and the central bank may need to buy shares temporarily to support the country’s ailing stock market.

When global equities plunge, “it’s very meaningful for the government’s share-buying institution and the Bank of Japan to buy stocks to support the market,” Muto said at a forum co- hosted by Bloomberg News in Tokyo today. “However, such purchases cannot last forever and should be justified only as a tool to avert a crisis.”

The Nikkei 225 Stock Average is at a 26-year low, eroding banks’ capital and making them reluctant to lend. Finance Minister Kaoru Yosano said today that the government has a “strong will” to combat the credit squeeze resulting from the stock-market slump.

Muto, currently head of the Daiwa Institute of Research, added that "in principle" equity values should be set by the market and authorities should avoid manipulating prices because doing so would hurt the stock market’s reputation.

The government has already allocated 20 trillion yen ($203 billion) and the Bank of Japan has set aside 1 trillion yen to buy shares owned by banks. Yosano last month ordered lawmakers within the ruling Liberal Democratic Party to study ways to bolster stocks, including the feasibility of the government directly purchasing equities in the market.

Keidanren’s Plea

Keidanren, Japan’s largest business lobby, yesterday called on the government to allow a public entity to sell state-backed bonds and funnel the proceeds into the flagging stock market.

The Nikkei slid 0.4 percent today to 7,054.98, the lowest since October 1982, on concern shrinking global demand and rising fuel prices will weigh on company earnings.

An unprecedented drop in exports since last quarter has forced Japanese manufacturers to cut production at a record pace and fire thousands of workers. The central bank forecasts the economy will shrink 2 percent in the year starting April 1, the worst in 60 years.

Muto said exports will drive Japan’s eventual recovery. Deflationary risks outweigh concerns about inflation in the world’s second-largest economy, he added.

Muto served as the central bank’s deputy chief for five years following a 37-year career at Finance Ministry. He was the government’s first choice to succeed Toshihiko Fukui as governor last year, only to be rejected by the opposition- controlled upper house, which said his stint at the ministry may hamper the bank’s independence.