America and the European Union debt crisis: the enigma of Japan
Lee Jay Walker
Modern Tokyo Times
Japan for the last twenty years was the nation to kick and look down with disdain and the American model was deemed to be dynamic, flexible and based on market principles. The banking crisis in America clearly showed the world that state intervention was the order of the day and several years later the “apple pie” appears to be getting covered in more debt.
The European Union is also engulfed by a different debt crisis but one in which the situation appears to be spreading and no solutions appear to be on the table in order to remedy the crisis. Therefore, both America and the European Union seem to be following the Japanese model but with different characteristics.
Ironically, despite Japan “throwing away two wasted decades” and the terrible events of March 11 when the earthquake unleashed a potent and deadly tsunami; the government of Japan stepped in and bought more of Europe’s debt in order to boost the European Union. Also, given the huge economic crisis generated by the tsunami and ongoing radiation crisis it is difficult to imagine America coping with such a strong currency despite all the problems which are happening in Japan.
However, it appears that Japan keeps on ticking while America keeps on selling more of its debt and given the lack of government policy directed towards the weakening dollar, it does appear that the government of America is not responsive to the international community. Therefore, the currencies of Japan and Switzerland are paying a high price and it is not based on market fundamentals.
In The Economist article called Debt and Politics in America and Europe: Turning Japanese the opening paragraph states “A GOVERNMENT’S credibility is founded on its commitment to honor its debts. As a result of the dramas of the past few weeks, that crucial commodity is eroding in the West. The struggles in Europe to keep Greece in the euro zone and the brinkmanship in America over the debt ceiling have presented investors with an unattractive choice: should you buy the currency that may default, or the one that could disintegrate?”
Currently Japan’s debt ratio is the highest in the world but nothing is clear in Japan because this nation still intervened and offered a helping hand to the European Union. Also, Japan’s unemployment rate remains relatively low when compared with the speed of unemployment in America and in other nations where it is even higher, for example Spain. Therefore, while America’s debt may be half the rate of Japan’s it is clear that the government of Obama did not step in to provide support to the European Union and nor does the American government appear to care about stabilizing the dollar.
However, Japan, the nation of two decades of little economic growth and periods of stagnation, keeps on mystifying many because the real picture appears disjointed and difficult to work out.
The Chinese Communist Party must be at a loss because many major democracies and economic powers are in crisis. Also, more important, it does appear that some democratic nations are blighted by political systems which focus on power at the expense of long-term benefits for society.
Therefore, while it is easy to point the finger at Japan because of political infighting and leaders resigning like it is second nature. It appears that America is going through the same crisis because why did it take the Democrats and Republicans so much time to increase the overdraft of America to a higher ceiling?
Turning back to the article in The Economist the author stated “America’s debt debate seems still more kabuki-like. Its fiscal problem is not now—it should be spending to boost recovery—but in the medium term. Its absurdly complicated tax system raises very little, and the ageing of its baby-boomers will push its vast entitlement programmes towards bankruptcy. Mr. Obama set up a commission to examine this issue and until recently completely ignored its sensible conclusions. The president also stuck too long to the fiction that the deficit can be plugged by taxing the rich more: he even wasted part of a national broadcast this week bashing the wealthy, though the Democrats had already withdrawn proposals for such rises.”
Xinhua which is state owned by China commented about the recent debt debacle in America that “Given the United States’ status as the world’s largest economy and issuer of the dominant international reserve currency, such political brinkmanship in Washington is dangerously irresponsible.”
The Prime Minister of the Russian Federation, Vladimir Putin, commented about America that “They are living like parasites off the global economy and their monopoly of the dollar.” The language by Vladimir Putin was strong but clearly many individuals share similar sentiments but based on more moderate language.
The Soviet Union bit the dust because it could no longer create a viable economic system which could maintain economic growth. The Chinese Communist Party understood this therefore all emphasis was put on economic growth and generating wealth irrespective “if the mouse was communist or capitalist.”
Will certain members of the European Union and America learn from the failure of Japan and implement genuine measures? Or will they follow the Japanese model and do little in the short-term in order to preserve political power bases?
The European Union also faces many internal convulsions because why should Germany face the brunt of supporting incompetent governments in the euro-zone?
http://www.economist.com/node/21524874 – The Economist