[OPE-L:1227] Re: RE: Re: Re: Re: monetary inflows versus capital accumulation

From: Fred B. Moseley (fmoseley@mtholyoke.edu)
Date: Wed Sep 15 1999 - 00:58:18 EDT

On Mon, 13 Sep 1999, makoto itoh wrote:

> Date: Mon, 13 Sep 1999 13:31:02 +0900
> From: makoto itoh <mktitoh@kokugakuin.ac.jp>
> Reply-To: ope-l@galaxy.csuchico.edu
> To: ope-l@galaxy.csuchico.edu
> Subject: [OPE-L:1198] RE: Re: Re: Re: monetary inflows versus capital accumulation
> Dear Fred, Jerry and other friends;
> As for the Japanese financial crisis, let me attach a file in Words 98, the
> draft of a chapter of my next English book, The Japanese Economy
> Reconsidered(Macmillan and St.Martin's). Any comments on it are certainly
> welcome. I do not think that the difficlty in Japanese banks will ignite a
> fall in the New York Stock market. Since Japanese banks seems safer than
> before the injection of public money. Japanese money is still going to buy
> US securities and shares. The US bubble will burst rather by its own logic
> just as we saw in the case of Japan, rather than in the subsequent cases of
> other Asian crises. The Chinese money may move away more quickly than the
> Japanese in its nature. Are these responses of some help?
> Makoto

Makoto, thank you very much for your response. I also have not been able
to download your chapter. And I am VERY interested in reading it. A book
by you on the Japanese economy, with a chapter on the financial crisis,
sounds very interesting and of course very timely. I hope we can figure
out a way to make your chapter downloadable.

You seem to suggest that the Japanese banking crisis is over ("banks feel
safer now"). Is this really true? As I understand it, Japan has had a
very severe banking crisis. I have seen estimates that the total bad
(i.e. "non-performing") loans of the Japanese banking system has been
something like $1 trillion (about 25% of GDP). (MAKOTO: is this more or
less accurate?) In the old days of capitalism (including up through the
Great Depression) such a severe banking crisis would produce widespread
bankruptcies and deep depression. The Japanese government (and most of
the other Asian governments) have been trying to solve the banking crisis
without such severe consequences by means of a very innovative government
policy. As Makoto says, the government has "injected public money" into
the banks. In very large amounts. I have seen estimates of something
like $500 billion, which is more that 10% of GDP. As I understand it,
this is in addition to the regular operating government deficit of around
10% ogf GDP. (MAKOTO: is this correct?). The way this public money is
supposed to solve the banking crisis, as I understand it, is that the
banks are then supposed to write-off some of the bad loans, thereby
reducing the debt burden of the distressed borrowers. Eventually, it is
hoped that banks will start to lend again and firms will start to borrow
and invest again.

But how likely is this to happen? Has the government injection of funds
into the banking system really solved the fundamental problems of the
Japanese economy? It has reduced the debt burden of firms and has reduced
the bad loans of banks. But has it solved the problem of insufficient
profitability of firms? Has it solved the problem of excess capacity? If
this innovative policy does indeed work, then I think this will be very,
very significant. The fundamental problem of "financial fragility" of
capitalist economies would appear to have been solved by means of this
innovative government policy.

Makoto, I would be very interested in, and very appreciative of, any
comments you might have the time to make about these crucial questions.


P.S. I was curious about your mention of "Chinese money" in the US. Do
you have an idea of the magnitude of this "Chinese money" and how it
compares to the magnitude of Japanese money in the US economy. From what
I can tell from the US data, Japanese capital invested in the US (except
for "foreign direct investments", which is not included in the estimates I
have seen) is about $450 billion ($300 billion in Treasury bonds, $150
billion in other US securities, and $100 in bank deposits or loans to
banks). China is not listed as a separate category.

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