Can't Americans Ever Internalize the Problem?

Thursday, October 16 2008 @ 06:53 AM JST

Contributed by: Y.Yamamoto

Japan's Finance Minister gives wrong tips in Washington

President Bush and Henry Paulson should have known that they couldn't afford the time to ask the Finance Ministers from Group of Seven countries for tips on how to turn around the situation for the following two reasons:

1) The financial turmoil triggered by the failure of Lehman Brothers is a challenge primarily facing the American people. If this can be fixed at all, it's none other than the Americans who can fix it. It's been proved time and again that they can reinvent their nation all on their own.

2) Asking Finance Ministers of G7 nations for their advice on how to stave off the total meltdown of the financial system, as Bush and Paulson did last week, is a total waste of time. Especially Shoichi Nakagawa, Japan's Finance Minister, told them the "success story" about how his country could recover from the burst of the bubble economy in the 1990s by injecting an enormous amount of "public funds" into dying, sometimes dead, financial institutions. The bailout funds totaled 46.7 trillion yen ($458 billion in today's exchange rate). But the fact remains that Japan's rescue plan did not work with the Japanese failing to learn bitter lessons from the bust. Back home, Yamato Life, for one, filed for bankruptcy protection on the same day Nakagawa was delivering his lecture in Washington. The insurer's President Takeo Nakazono shamelessly attributed his company's failure to the "unexpectedly fast depreciation of securitized subprime loans." Bush and Paulson should have known that Japan's prescription has been tested unworkable.

As to the first point above, Niall Ferguson, history professor at Harvard, points out that as of 1980, American households were indebted as much as 20% of Gross Domestic Product, but in 2006, their debts reached 100% of GDP. Yet, this is just a half of the formidable problem facing America. According to Ferguson, American banks and other financial institutions are even deeper in debt. By 2007, their indebtedness accumulated to 116% of GDP.

In fact the situation is even worse; America's main creditors are Japan and China. Japan has long gone belly up, and as many China experts observe, the Asian behemoth is now on the verge of bankruptcy. The U.S., as a debtor nation, should be well-prepared for the collapse of China because when the world's most populous country is about to tumble it will surely dump all its holdings of the Treasury Bills and other U.S. securities which had totaled $699 billion by June 2006.

TIME's Ferguson goes on to argue that the $700 billion stabilization measure is "just a short-term fix, but [it's] better than no fix" at all. I find the typically American way of viewing the current situation simply self-deceptive. It seems a fair bet that the next President of the United States will ask for another "surge" in cash injection. Before talking about how to fix it, the Americans should define, first and utmost, what exactly should be defended at the expense of taxpayers. Franklin D. Roosevelt was much clearer in this respect when he launched his rescue plans generically called "New Deal".

Shallow-minded gentlemen such as Bush, McCain and Obama are putting all the blame on greedy people in Wall Street. Then, who are the people their financial rescue plans are intended to bail out? What values should be defended against what vices? And how would they articulate their visions about a new capitalism untainted by "excessive" greed? To answer these questions, they should perhaps revisit Max Weber (1864-1920) who authored The Protestant Ethic and the Spirit of Capitalism. The German political economist argues that greed is not particular to the Western capitalism and that only "the lowest sort of avarice should be proscribed as an attitude entirely lacking in self-respect."

A departure from the principles of the Founding Fathers, which are centered around democracy and capitalism, is out of the question. On the contrary, it now seems essential for the American citizens to have a hard look at their way of life as well as their way of thinking in the light of these principles that all boil down to self-reliance.. Nothing else than the adherence to the principles should be taken for granted as a sacred cow.

As recently as in July, Japan hosted the farce called the 34th G8 Summit where the imminent economic crisis was not high on the agenda. Instead, they talked a lot about how to counter the global food crisis and environmental degradation toward the middle of this century. But now we have learned how ridiculous it is to entrust the future of our planet earth to someone who can't even foretell what is happening on his home turf in the next quarter.

All in all, now is the time for individual U.S. citizens to internalize the root problem underlying the ongoing crisis, face up to the reality of their debt-laden lives and get on their feet once again with a lot of "self-respect" and inventiveness.

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