By Ellen Brown
When a spokeswoman for the International Monetary Fund (IMF) said at a news conference on March 17 that
Spokeswoman Caroline Atkinson said, "The most important policy priority is to address the humanitarian needs, the infrastructure needs and reconstruction and addressing the nuclear situation. We believe that the Japanese economy is a strong and wealthy society and the government has the full financial resources to address those needs."
Skeptics asked how a country with a national debt that was over 200% of gross domestic product (GDP) could be "strong and wealthy". In a Central Intelligence Agency Factbook list of debt to GDP ratios of 132 countries in 2010,
The answer may be that the Japanese government has a captive funding source: it owns the world's largest depository bank. As US vice president Dick Cheney said, "Deficits don't matter." They don't matter, at least, when you own the bank that is your principal creditor.
Japan Post Bank is now the largest holder of personal savings in the world, making it the world's largest credit engine. Most money today originates as bank loans, and deposits are the magic pool from which this credit-money is generated. Japan Post is not only the world's largest depository bank but its largest publicly owned bank. By 2007, it was also the largest employer in
As noted by Joe Weisenthal, writing in Business Insider in February 2010:
If there's going to be a run on government debt, it will have to be the result of its own citizens not wanting to fund it anymore. And since many Japanese fund the government via accounts held at the Japan Post Bank - which in turn buys government debt - that institution would be the conduit for a shift to occur.
Before the March 2011 tsunami, that is what it appeared to be doing. But now there is talk of reverting to the neoliberal model, selling off public assets to find the funds to rebuild. Christian Caryl commented in a March 19 article in Foreign Affairs, published by the Council on Foreign Relations:
The battle of the banks
Before the 1990s,
The Nikkei stock market crashed and took Japanese industries down with it. By 2001, Western investors were finally able to penetrate Japanese markets that had previously been closed to them, entering the merger-and-acquisition market to acquire crippled Japanese enterprises. Major public companies were at least partially privatized, including the railway, telegraph and telephone companies; but the government resisted letting go of its vital postal service system.
The history of the Japanese Postal Savings System (JPB) is detailed in a
Founded in 1875, the postal savings banks were quite popular with the Japanese people, and
Postal savings banks were also attractive to savers because they offered special time deposits called teigaku savings, or "fixed amount postal savings", on quite favorable terms. These were 10-year time deposits from which depositors could withdraw funds on short notice without penalty, making them very liquid and reducing interest-rate risk. There was a formal limit of 10 million yen in postal deposits per individual or household, but it was not rigorously enforced; and wealthy savers could circumvent it by holding multiple accounts.
JPB formed the basis of a unique and opaque system of borrowing and lending, which operated as a "shadow" banking system sometimes referred to as "
Unlike the national budget, budget allocation to FILP did not require parliamentary approval. Funds were channeled to local governments, government-affiliated public companies, and government financial institutions acting as highly specializedlenders. Although many countries have government-sponsored loan programs, the Japanese program was remarkable for its size. By 2001, the FILP program involved over 400 trillion yen, a sum equal to 82% of
The battle over privatization
What followed was described by Christian Caryl in his article in
The privatization plan was begun in 2007 and was supposed to end in complete privatization of
Michiyo Nakomoto, writing in the Financial Times on April 5, 2010, said, "There was always going to be disagreement between the DPJ, whose core members believe the post office's bank and insurance companies should be scaled back to revitalize the private sector, and Mr Kamei's PNP, whose prime goal is to expand the post office's influence."
But Mr Kamei and his junior party had the upper hand in this debate. Mr Nakamoto wrote in the Financial Times on September 20, 2009:
The minister has also been vocal on the need to support struggling small and medium-sized companies, fuelling concerns that the government would adopt a socialist approach to the private sector.
Of particular alarm to some critics have been Mr Kamei's remarks suggesting that the government would shelter SMEs [small and medium-sized enterprises] facing financial problems via a temporary moratorium on loan repayments.
"When the lender is in trouble, we will rescue them with taxes and when the borrower is in trouble, we will grant them a reprieve [on their loans]. That is the natural thing to do," Mr Kamei told the Nikkei business daily at the weekend.
But now, without any apparent consultation with ... other fiscal and administrative policy ministers, he has moved to significantly alter private savings behavior and public funding capability.
The irascible 73-year-old Financial Services Minister proposed - well, demanded, actually - that Japan Post Bank's individual deposit limit be raised to Y20 million ($230,000) and Japan Post Insurance's maximum policy coverage rise to Y25m.
In doing so, he has significantly expanded
As of March 31 last year, 74% of the postal bank and postal insurer's combined assets of Y303 trillion (that's right, $3,480 billion) were held in
Utilizing the post office's 24,000 shop fronts, Japan Post Bank (the world's largest savings bank) and
Kamei's bold move was good for the government and good for the people, but its foreign and domestic competitors were not pleased. A coalition of organizations representing American, Canadian and European business interests objected that the proposal disregarded "international best practices to ensure equal competitive conditions" and raised "new and serious questions regarding
Michiyo Nakamoto wrote in the Financial Times in May 2010:
The private sector banks are fuming at the government's decision to raise the maximum that can be held in an account at the postal bank from Y10m ($112,000) to Y20m and allow the lender into a wider range of businesses than it has been permitted to engage in so far.
They argue that the government's stake, which is currently at 100%, gives the postal bank almost a state guarantee that will encourage depositors to shift their savings out of private banks into the post bank. They are also worried that the post bank, the country's biggest bank by deposits, will encroach on the few profitable areas of banking business in
But that was before the crippling tsunami and the nuclear disaster it triggered. Whether they will finally force
The Japanese government can afford its enormous debt because the interest it pays is extremely low. For the private economy, public debt IS money. A large public debt owed to the Japanese people means Japanese industries have the money to rebuild. But if
The Japanese people are intensely patriotic, however, and they are not likely to submit quietly to domination by foreigners. They generally like their government because they feel it is serving their interests. Hopefully the Japanese government will have the foresight and the fortitude to hang onto its colossal publicly owned bank and use it to leverage its people's savings into the credit needed to rebuild its ravaged infrastructure, avoiding a crippling debt burden to foreign interests.
Ellen Brown is an attorney and president of the Public Banking Institute, http://PublicBankingInstitute.org. In Web of Debt, her latest of 11 books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites arehttp://webofdebt.com and http://ellenbrown.com.
(Copyright Ellen Brown 2011.)