Japan Intervenes to Bail Out America.com

By: Peter Schiff - Friday, September 17, 2010

This week, after the Japanese yen had surged to a fifteen-year high against the US dollar, the Japanese government decided to intervene in the foreign exchange market. To great fanfare, the Bank of Japan initiated a vigorous campaign to buy US dollars, thereby stemming the rise of the yen and pulling up the greenback. The effects were immediate, with the yen falling an astonishing 3% on the day of the announcement. At a time when American politicians are growing increasingly vocal about China’s currency manipulations, Washington was strangely silent on the Japanese move. This was completely overlooked by the hawkeyed media.

While missing this blatant irony, the media spin doctors cast the Japanese decision as an attempt by the island state to prop up its own fragile economy. More accurately, the intervention was done to help American consumers buy more cars and electronics from Japan. In truth, although more American purchases would nominally benefit some Japanese exporters, a weaker currency is a detriment to the overall Japanese economy.

The politics of currency intervention are actually quite simple. Japan’s economy is dominated by large manufacturers that export lots of goods to Americans. The problem is that Americans can’t really afford to buy in the quantities that they did just a few years ago. So, instead of looking for new customers with more money to spend, either in their own country or in other productive economies, Japanese manufacturers use their political clout to lobby their government to bailout their traditional U.S. customers. The bailout takes the form of a direct transfer of purchasing power from Japanese savers to American consumers, so that Americans can continue buying products they couldn’t otherwise afford. In short, pushing up the dollar allows Japanese exporters to postpone a necessary, but costly, restructuring.

The tendency for governments to sacrifice the needs of the general population in favor of entrenched corporate interests is not unique to Japan. In the United States, we have taken similar measures on behalf of our dominant industries. However, instead of manufacturers and exporters, whose political clout has waned along with their economic prospects, Washington has moved to protect the profits of the financial, retail, and real estate industries– the true heavyweights of the American corporate world. These industries profit when Americans borrow money to buy things they can’t afford. To keep this behavior going, the government must make it possible for consumers to take on more debt; but, in so doing, these policies have left us with an ailing economy in need of deep and drastic restructuring.

In a way, what the Japanese government is doing for American consumers is very similar to what our government is doing for American homebuyers. Rather than let home prices fall, the US government subsidizes homebuyers so they can continue overpaying for houses they cannot actually afford. The beneficiaries of these moves are those selling, building, and financing overpriced homes. Unfortunately, the last thing we need as a nation is to build, buy, or finance more homes. Our economy would improve if the resources devoted to the real estate market could be devoted to other, more needed industries.

Japan should allow the dollar to fall, which would force their manufacturers to adapt to a changing global market where Americans consume less, and those in emerging markets consume more. Instead, it is vainly trying to preserve the status quo and appease entrenched political factions.

Just like here in the US, Japanese politicians take cover by falsely claiming that the intervention “saves jobs.” However, the jobs that are saved come at the expense of more productive jobs that are either lost or not created. If Americans cannot afford to buy Japanese products, it makes no sense for the Japanese to continue selling them to us. Rather they should devote their time, effort, savings and resources to selling products to customers who can actually afford to pay.

Japan’s bailout of American consumers is nothing more than international vendor financing. This is the same technique used by telecom companies during the Internet boom of the late ‘90s. In order to pump up short-term profits, manufacturers of communications gear loaned money to cash-strapped Internet startups so they could buy switches and routers. Of course, when the dot-coms went bankrupt, all those phony sales were written off; then, the stocks of those companies doing the financing, like Cisco, Lucent, and Nortel, collapsed as well (though they did not collapse to zero like the dot-com companies). Although their performance would have lagged during the boom, the equipment manufactures would have been in far better shape fundamentally if the phony sales had never been made.

The same fate awaits the US and Japan. In this analogy, Japan is Cisco and the United States is Pets.com. Sooner rather than later, both Japan and China will realize that they have been hoodwinked by a fast-talking sock puppet without a credible plan to pay them back. When that happens, they will take the write down and let us fend for ourselves.

Rev. Billy: How Consumerism Makes Us Powerless

How Consumerism Makes Us Powerless
First sermonette in a series…

Not about politics. Those folks default to racism and conspiracy theories. They have a point about how they feel, which is how a lot of us feel. We are surrounded by a creeping dullness. A lack of traction with the outside world. How do we touch others? How do we have power?

Simple acts of living have lost the feeling of social power. We know that the corporations have kept us in a state of consumer passivity for a long time. For many millions – since Ronald Reagan. But like the climate change that Consumerism causes, it’s hard to measure the exact damage. We know what we feel. We know we can’t “breathe free.” We know we can’t “speak free.” We feel an exhausting interloper in even our most everyday experience. It is the market — whispering, screaming, selling, then fading to Muzak and white noise.

Our community becomes very spacey. You can live somewhere all your life and find yourself surrounded by products – you might quickly become an utterly un-selfed consumer like a game-show contestant or a tourist. Products are not psychologically neutral. You can turn off the TV and head for the hills, but the hills are alive with fluorescent and bug-eyed tchochkes leaping from the walls of shopping centers that came out of nowhere.

The Tea Party blames Washington. Well, American politicians believe in Consumerism as our primary economy and culture. If the retail grosses are edging upward, then all’s right with the world. The electeds can say “I feel your pain” when the teleprompter tells them to, but our current existential crisis isn’t something they grok. The politicians aren’t nearly as bright as the marketers. They’ll be taken aback by the hunger riots coming soon. I’m referring to the hunger for meaning, for community intimacy, for the satisfaction of our social souls.

The big grand concepts of democracy, America and freedom – are not usually traced down to the lost minutes of ordinary people. THEY MUST START THERE. Amen? That is also where we suffer in this bizarro “built environment” of Consumerism, which comes into our down time as pavement, invisible toxins and billboards. Down in the details of our lives, ho-humming between one errand and the next, we feel an essential disconnect. We don’t have words to describe it. And, it doesn’t get described by anyone. Ordinary experience? That’s not the news, ordinary life. It’s not “Fit To Print.” For public commentators it’s like trying to squeeze the dark matter of the universe into a Twitter feed.

Accumulations of powerlessness in our ordinary living escape like hot gasses, like the acting out of the Tea Party and survivalists and liberals dying while imitating Indians in sweat spas – we have apocalyptic zealotry of many a weird stripe. There is a lot of this splintering off into colonies of the instantly righteous. The marketing officials in corporations are studying us carefully. They know it’s not just the weirdos. This is happening to all of us. We’re a sleeping monster.