A little something I get via email that I thought you all might find pertinent.
Ron
**************************************************************
Global Intelligence Update
Red Alert
September 21, 1998
Impeachment, Japan, and a Hunger for Crisis
President Clinton is running out of room to maneuver. Forty-six
percent of respondents to a poll published in the current issue
of Newsweek think that Clinton should consider resigning. Over
60 percent want public censure, an unprecedented step. Less than
a third want Clinton to remain in office without any punishment.
We have reached an extreme point, where Clinton must regard those
who favor censure but not impeachment to be among his strongest
supporters. When you are counting among your supporters those
who are calling for your public humiliation, it is time to
reexamine your options. Clinton is running out of them, but he
has one big one left: foreign policy, particularly the
international financial crisis.
This week, the Asian economic meltdown and the impeachment debate
are converging, creating a crisis and an opportunity. The
crisis: On Monday, Clinton's videotaped grand jury testimony will
be made public. This will, in all likelihood, intensify pressure
on the president, because the Republicans would not be releasing
the testimony so eagerly if it were not harmful to Clinton. The
opportunity: On Tuesday, Japanese Prime Minister Keizo Obuchi
will be meeting with Clinton.
At this point, Clinton's defense has been reduced to three
arguments. First, while it is true that he lied in essence, he
is arguing that he did not lie in the narrowly legal sense of the
term. Because he did not break the law, he should not be
impeached. Second, his supporters are arguing that even if he
did lie under oath, it was a lie about sex. Sex is a private
matter and lying about such matters is common and natural.
Therefore, lying under oath about private sexual matters is
understandable and does not constitute a sufficiently grave
offense as to justify impeachment. Clinton's final line of
defense is the most important: Even if he did violate the law,
this argument goes, he is doing such a splendid job in all other
respects that no reasonable person should want to see him removed
from office.
This last line of defense depends on public perception, and is
reflected in his job approval rating in the polls. Clinton has
used his job approval rating as the ultimate argument against
impeachment. Therefore, maintaining the job approval rating has
become mission critical to his presidency. Now, it is possible
to argue that he is doing a good job as president, but that he
should still be impeached if he breaks the law, and this view is
gradually being manifested in the polls. However, should his job
approval rating decline dramatically, then all would be lost.
Clinton must continue to be seen as doing a good job. Thus, the
key question is this: What constitutes doing a good job?
"It's the economy, stupid." This has been his strength. It is
now potentially a catastrophic weakness. There appears to be an
international economic crisis of epic proportions that seems to
be affecting the U.S. economy. The U.S. stock markets have been
sharply hit of late. A cyclical downturn is overdue, at least in
the simple sense of the length of the current economic expansion.
Clinton does not appear to have a policy for dealing with this.
Now, such a downturn may not be due to Asia and it may not be
under Clinton's control, and the worst solution of all may be a
Washington-generated policy trying to solve the world's economic
problems. But Clinton's problem is that he who lives by myth,
dies by myth. Having unfairly taken credit for America's
economic well-being, he will now unfairly be blamed for America's
economic problems. Inevitably, economic and market weakness will
eat into his ratings, collapsing his last line of defense. Thus,
the pressure to appear to be doing something decisive about the
economy is growing irresistible to a man not known for his
ability to resist temptation.
Enter Japan's Prime Minister Obuchi, fresh from his country's
latest failure to create a workable solution to its economic
crisis. After weeks of trying to pass legislation for dealing
with the mass of bad debts accumulated by the Japanese banking
system, itself merely a symptom of much deeper problems, the Diet
finally passed a bill last Friday. Like all of its predecessors,
the bill was designed to give the appearance of action rather
than to constitute action. It was designed to avoid contact with
reality rather than to grapple with it.
Even accepting the fact that Japanese politics have become as
bankrupt and gridlocked as the Japanese economy, the Diet's
actions were breathtaking. On the eve of a critical summit with
the U.S., the Diet knowingly produced a bill that would
demonstrate not Japan's intention to solve its own problems but
its utter inability to do so. Because no real pressure was
exerted from any quarter and the Japanese are not stupid, they
clearly understand both what they are doing and how it may appear
to the rest of the world. And because Japan is no longer even
pretending very hard that it is doing anything to solve the
problem, we are left to wonder what the Japanese have in mind,
since we are quite sure that they have much in mind, appearances
notwithstanding.
Consider the obvious solution. Japan can force its banks to
liquidate their debts, contracting their capital base, cutting
available credit, and creating a new wave of bankruptcies. This
will bring about a dramatic restructuring of the Japanese
economy, similar to what happened in the U.S. several years ago.
While this will be incredibly painful, with unprecedented high
unemployment and interest rates, in the long run Japan will
emerge stronger and more competitive. Alternatively, the
Japanese government can absorb the bad debts, print money to
cover them, and inflate its way out of the problem. This is a
much worse solution, but it is a solution. The problem with both
of these solutions is politics. It is unlikely that the Liberal
Democratic Party and the Japanese political system as currently
constituted could survive the stresses and strains implicit in
this strategy. So, Japan has a domestic solution available, but
it is extremely painful and politically unacceptable.
Therefore, Japan has decided on another strategy:
Internationalize its banking crisis. Japan is not merely
avoiding action. Whether by design or by accident, it is
exporting its problems. Take, for example, interest rates. Low
interest rates reduce bankruptcies and have their justifications,
but Japan's interest rates are insane. The 10-year Japanese
government bond currently carries a yield of less that 0.7
percent (That's not "seven" percent; that's "zero-point-seven"
percent). As a result, money continues to leave Japan while
foreign investment avoids Japan like the plague.
All of this weakens the yen. Now, a weak yen helps Japan's
exports, but it also places enormous pressure on other Asian
economies. Low Japanese interest rates strike directly at
China's ability to maintain the yuan. Indeed, the Chinese have
been quite bitter at Japanese policies for their effect on China,
and have been intensifying currency controls of late in order to
minimize the effect of the yen's general weakness. Everything
that Japan has done has had the effect of increasing the strain
on the international system. That appears bizarre until you
think about it.
Japan has two goals. First, it wants to get out of this economic
mess. Second, it wants to do so without making fundamental
changes to its society, economy, or political system. Any
solution it devises will require fundamental changes. If,
however, Japan can convince others to underwrite the restoration
of its financial system, it can save itself without fundamental
change. The key is to convince others that they have no choice
but to absorb the cost of bailing Japan out. That isn't easy to
do. However, if the Japanese can convince the world, and
particularly the U.S., that (a) Japan is incapable of solving its
problems and (b) Japan's inability to do so will wreck the
international economic system (and America's), then the rest of
the world will have no choice but to act.
The solution would look something like this. Instead of the
Japanese government creating a new entity, similar to the
Resolution Trust Corporation that managed the collapsed savings-
and-loan system in the U.S., the IMF or a new agency funded by
international capital would buy up bad loans in Japan. This
would allow Japanese banks to restructure their balance sheets
without forcing a fundamental shift in fiscal and monetary policy
in Japan. In short, the rest of the world, mostly the U.S. with
some European help, would pay for Japanese mismanagement.
Because Japan's fabled bureaucracy would still be in place,
inevitably, formal international controls on the Japanese banking
system would be informally thwarted, leaving Japan looking much
like it did before, with foreigners carrying the burden of
Japanese mismanagement.
Why would anyone agree to this? If the Japanese can convince the
world of points (a) and (b) above, then, in a massive game of
international financial chicken, the country with the most to
lose, the U.S., will have no choice but to save Japan from
itself. Because Japan doesn't have many other choices, it has
little to lose in following this strategy.
Of late, the Japanese have managed to threaten the U.S. without
doing so openly. On Friday, Prime Minister Obuchi said, "I have
decided that the world's second largest economy, Japan, should
not become the source of the global financial meltdown." Now,
because the legislation he was announcing would have absolutely
no impact on the course of that meltdown, what he was really
saying was, "If things go on this way, Japan will cause a global
economic meltdown. Japan is not going to do a single thing to
avert this meltdown. If you don't believe me, just look at this
legislation. So, if you don't want a global meltdown, you'd
better do something." And with that, he got on the plane to
visit the U.S.
As our regular readers should be aware, we are not of the opinion
that the Asian crisis is causing a global meltdown. Russia's
problems have nothing whatever to do with Asia. Latin America's
problems are only marginally linked to Asia's, and are far less
structural. The European and American situations are quite
separate from Asia's problems. But it is in Japan's urgent
interest to convince the Western community that there is a global
crisis, and saving Japan will avert that crisis. Unfortunately
for Japan, its subtle assertion that it is more in the world's
interest to save Japan than it is in Japan's interest to save
itself is not persuasive. Normally, such an assertion would go
nowhere.
The problem today is that Bill Clinton badly needs a crisis to
solve. In fact, he needs to save the world. Obuchi has tried
very hard to give Clinton the opportunity to appear to be saving
the world. The question is whether Clinton will seize the
opportunity. Thus, two political cripples are meeting this week
to discuss the future of the international financial system.
Clinton set the stage for the meeting last week, when he
announced the need for a global economic conference to solve the
problems posed by the Asian meltdown. Interestingly, Alan
Greenspan tried to diffuse Clinton's initiative by making it
clear that he was not even in favor of a global interest rate
cut, let alone more concerted international action.
Nevertheless, Clinton badly needs to be seen as a decisive
political leader.
Thus, the danger this week is that Clinton's political weakness
will tempt him into playing Obuchi's game. Clinton's need for a
sweeping and decisive gesture, to convince the public that he is
indispensable, will lead him to be sorely tempted by Obuchi's
desire to create an international solution to Japan's, and
Asia's, economic problems. In our view, the U.S. can no more
solve Japan's problems than it could solve Russia's. Japan's
problems are deep, structural, and of Japan's own making. The
solutions must be deep, structural, and Japan's responsibility.
Moreover, it is our view that the U.S. is far less threatened by
a Japanese meltdown than Japan would like the U.S. to believe.
Internationalization will merely further postpone Japan's day of
reckoning, while actually increasing U.S. exposure to the
consequences of delay.
Whether we are correct on this point or not, the pressure on
Clinton to allow Obuchi's worldview to dominate the meeting is
intense. Whether there is a solution, and whether the U.S.
should shoulder the burden for the solution, may turn out to be
less material than Clinton's need to make it appear that he alone
has the solution, and that without that solution, and without
Clinton, the world faces a disaster.
Obuchi, in an interview with the Washington Post on Sunday,
turned up the pressure on Clinton, or gave him more ammunition,
depending on how you look at it. Obuchi said that Japan had
tried every solution and that the only remedy left might be to
build up a "wartime economy," with increased defense spending
leading the way to new jobs and industrial growth. Coming after
Japan's very public panic over North Korean missile tests, Obuchi
is signaling the U.S. that the only option under its control is
the return of Japanese militarism. If the U.S. doesn't want
that, then it is up to the U.S. to solve Japan's problems.
A strong president would refuse all assistance to Japan, at least
until the Japanese themselves show their willingness to make
painful decisions. In ordinary times, Bill Clinton could do this
and still appear decisive, taking advantage of his willingness to
confront Japan as evidence of his will. But these are not
ordinary times, and a show of will in private meetings will not
affect Monday's release of Clinton's grand jury testimony. If
those tapes kick off a firestorm, Clinton may look at his meeting
with Obuchi as his last chance to save his presidency, by
appearing to save the world.
It has been said that this is a crisis of character. This week
will be the ultimate test of Clinton's character. If he can
resist the temptation to play Obuchi's game, he may finally show
that he has character. Paradoxically, that very show of
character might throw away a final chance to save his presidency.
___________________________________________________ |
