THE CLAIRE FOSS JOURNAL

Japan: Welcome to "The Club"


Since the Japanese government was forced to give up control of their central bank in early 1997, things have gone from bad to worse. According to most media sources the blame has been placed on the incompetence of the Japanese government in totally mismanaging their economy.

This is misleading to say the least. In the not too distant past there was extreme pressure from the international banking cartel forcing Japan to borrow money at usurious rates of interest from offshore funding institutions.

The International Hearld Tribune (27/6/91) carries an article by Carl Gewirtz showing Japan to have been the biggest borrower on international markets over the previous decade. Japanese bond issuers now have some $317.7 billion of bonds outstanding - nearly double the paper issued by US firms.

But significantly, almost a third of the bonds issued by Japanese firms on international markets - the equivalent of 133 billion - had warrants for their conversion into common stock.

The idea was to have the bonds redeemed before maturity with equity shares. Since the Nikkei index of Tokyo stocks had soared almost 300 percent between 1983 and the end of 1989, that seemed a reasonable prospect. But the higher interest rates imposed on Japan by pressure from the West nipped the plan in the bud. Between 1989 and March 1991 the Nikkei index dropped from 38,915 to 26,292 - low enough to make it unlikely that the warrants of some 80% of the convertible will be exercised. [The Nikkei is currently in the 15,000s.]

That means that over the coming three years bond issues with unbelievably low coupons( because of the once promising warrants) will have to be replaced with new bond issues at far higher rates - in foreign currencies.

By imposing higher interest rates on Japan Washington undermined a policy of low interest rates that fed a stock market boom not unlike the one on which the US prides itself today. And for years that kept Japanese exports brisk and unemployment low. But international deregulation and the problems of the US banks in the eighties left the field of speculative Eurodollar and US real estate financing to the Japanese banks. They lost no time wading into it up to their eyebrows. Policies imposed by the West in this way contributed as much to the banking catastrophe as any thing hatched on Japanese soil.

This unscrupulous use of forced interest rate hikes has been most instrumental in creating a huge debt problem thus helping destroy the credibility and partially scuttle the Japanese banking system.

It was by implementing cunning international squeeze play's like this that the Japanese have been brought to heel and then manipulated into giving up control of their own sacred central bank.

In turn these same international banking organizations have the audacity now to blame "government mismanagement" as the main culprit, when in fact they themselves were the behind-the-scene's perpetrators causing the Japanese economy to falter. This pre-planned stumble in the Japanese economy was precisely the signal needed for the international banking cartel to put an end to a much too efficient central bank, an organization against which the rest of the banking world could not possibly compete.

Quoting from the front page of the Wall Street Journal Aug. 2nd, 1996 "If all goes as expected, Japan's parliament will do something early next year that was unthinkable four months ago: It will give Japan's central bank the same sort of autonomy as Alan Greenspan's Federal Reserve has."

The Japanese government has given up their system of a separate government agency overseeing and guiding the affairs of their central bank and thus the economy. From that time forward the Japanese central bank was no longer in the hands of Japanese officials -- their marching orders are now coming from the same generals as do the rest of the western world's central bankers -- namely the directors at the BIS (The Bank for International Settlements) in far off Switzerland. Internal meddling is to blame for bringing to an end a central banking system that had the blessings of some of the world's major economists, including the international banking cabal's most widely quoted authority, professor Milton Freidman. It was this same banking system that was most instrumental in bringing a nation out of total ruin after World War II, to the economic miracle that was evidenced in Japan.

Although it may not have been quite the ideal model, the past Japanese central bank was at least under the control of the Japanese themselves, a practice that governments around the world would do well to emulate. But what has transpired instead, is that the powerful BIS, the US Federal Reserve, the IMF and the World Bank have now effectively neutered the central bank of Japan by the use of some very underhanded tactics.

Claire Foss

A special thanks to The International Herald Tribune and the newsletter- Economic Reform.