Japan’s Economy Gets Worse — So Does the World’s

[This is a letter I sent out to my “Hi everybody” email list in September 2001. —Scott H.]

September 10, 2001

Hi everybody,

      The article below shows that the Japanese economy continues to worsen. [The article (not included here) was the Reuter’s report “Japan hit by more dismal data on economy”, by Ritsuko Ando, Sept. 10, 2001.]

      One of the things the government (mostly through the Bank of Japan) has done to try to reverse the slowdown is to increase the money supply, and the amount of money the banks have to lend to corporations. Another thing they have done is drop the interest rate on bank loans to the absolute floor. (Commercial banks themselves pay virtually zero percent interest on money borrowed from the Bank of Japan, and in turn charge their best customers only a tad more.) Despite all this, bank lending continued to fall—for the 44th consecutive month!

      Why is this? Simply because corporations have no good reason to borrow money, even if interest rates are near zero. What can they do with it? Build more plants to produce more goods—when they can’t sell the goods their existing plants produce? There is no incentive to borrow if there is no good reason to think you can invest that money and make a profit on your investment.

      Japan, and the world, are in an overproduction crisis, and the methods which bourgeois economists use to try to keep things going just won’t work. In particular, lowering interest rates, and increasing the money supply simply do not address the root problem.

      In the U.S. too, it appears that the gradual lowering of interest rates engineered by the bourgeois economic God, Alan Greenspan, has not had much effect. Whether the U.S. economy will soon follow Japan into an official recession is still not certain at this time. But what is certain is that the world economy including that of the U.S. is slowing down and stagnating, and that nobody knows what to do about it.

      The reason nobody knows what to do about it is that there is nothing that can be done about it. At least nothing that is at all palatable. Capitalist overproduction crises can be solved only in one basic way—through the massive destruction of excess capital, which clears the ground for a vigorous new expansion. In the imperialist era recessions and even depressions are not enough to accomplish this—unless perhaps they go on for decades and achieve a totally unprecedented harshness. Even the “Great Depression” of the 1930s was not severe enough to accomplish this, and it took the massive destruction of capital in World War II to really clear the ground for a major new expansion.

      At the moment there is no world war set to break out and “save capitalism” again. So my prediction is that the world faces a prolonged period of stagnation, which—though there will be some ups and downs—will gradually get worse, and eventually sink into an outright depression. Japan is leading the way, and showing us what the world in general will be like in the near future. Their past dozen years stagnation, with 4 recessions (counting the one they are sinking into at present) interspersed with very weak recoveries, shows the sort of pattern that I think will be repeated in the other advanced capitalist countries.

      There is one thing that individual countries can do to improve their own circumstances in this situation—namely shift part of their own problems onto other countries (thus aggravating the problems there). Thus the imperialist countries, and especially the one superpower, the U.S., are always better off than the third world countries they exploit. Moreover, sometimes one imperialist country can shift part of its difficulties onto one of the other imperialist countries—as the U.S. was able to do with respect to Japan during the 1990s (and still to some degree at the present). This was done through an agreement which brought about a revaluation of the yen at the end of the 1980s. There are growing signs that Japan is losing patience with this situation, and even becoming a bit testy.

      There is another thing that countries can do for a while to keep things going—Keynesian deficit spending. But debt can only be built up so far before lenders begin to recognize that their prospects for being repaid are looking poor, and stop lending. In the case of Japan, Moody’s recently downgraded the rating on their massive debt once again. This is the sort of thing that is forcing [Prime Minister] Koizumi to try to issue no more than $250 billion in new Japanese government bonds this year. The one Asian country that is still pretty economically healthy is China, which has been using massive Keynesian deficits to keep things going. But it won’t be too long before their debt reaches dangerous levels too.

      The third thing that countries can do (for a while) is arrange for their own citizens to increase consumer debt in order to keep their home markets healthy. This is the main method the U.S. used during the 1990s to create a boom here. (The yen-dollar rate deal with Japan was also important, but secondary.) Even bourgeois economists, however, are starting to wonder how long consumers can continue to keep things going this way.

      This world capitalist economic crisis is not really anything new; it has been developing for 30 years, ever since the end of the post-World War II boom. But what is new about it is that it is getting to the point where not just the third world is hurting, but even the imperialist countries themselves. Japan, of course, more than the rest so far, but the U.S. and Europe now too.

      With the U.S. going through an artificial boom in the 1990s it was easy to ignore this overall world economic slide, and even some American Marxists—who should know better—started saying that the problems which started developing in the 1970s had somehow gotten resolved. Now, however, the truth of the matter is gradually becoming more apparent.

      We live in interesting economic times.


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