Kunaal Kanagal (University of Southern California, U.S.A.)
In his recent article "Quick to Rebuke U.S., Rest of World Had Part in Crisis Too," Mr. Masahiko Ishizuka provides his insight regarding the responsibilities of the U.S. and Asian countries, especially Japan, in creating the current global crisis. He balances the responsibilities for the crisis across numerous countries, noting that it has become "fashionable" for many countries to hold up the United States as a scapegoat for their financial struggles. Mr. Ishizuka accurately points out that U.S. consumers utilized poor credit restrictions, soaring housing prices and lending from foreign firms to spend too much and save too little. He believes that "what made all this possible" was the monetary cycle between the United States and its lenders such as Japan and China. These Asian countries were lending to and investing in the U.S for their own prosperity as well, thereby becoming too dependent on U.S economic bubbles and ignoring the profit avarice of many investment firms. Mr. Ishizuka focuses especially on Japan's efforts to recover from the recession, accurately expressing the primary concerns of the Japanese people about their future and calling to attention the need for Japan to utilize its current advantages to become a more independent economy.
There are certain points in this article that I do not agree with. For example Mr. Ishizuka cites that the monetary cycle between the United States, Japan and China is what "made all this possible," suggesting that this monetary cycle is largely responsible for the current crisis and needs correction. It is important to realize that the U.S. dollar is the key currency and its cycle across countries inevitable. The monetary cycle of the dollar has in fact supported the world economy throughout the post-war period and hence cannot be pronounced as the main cause for the most recent financial crisis. Mr. Ishizuka should have focused his argument on more recent behavioral and policy changes such as the lending practices of U.S. investment firms such as Lehman Brothers and Bear Stearns, which had over 30 to 1 leverage ratios and depended on billions of dollars in overnight loans just to survive. These factors have played a much bigger part in creating this recession than the monetary cycle. By realizing that lending to the United States is essentially inevitable Mr. Ishizuka could have avoided asking the counter-productive question, "Where is the responsibility of exporting countries, which benefited from, and even encouraged, the American consumption orgy? If American consumers were irresponsible, undisciplined and overly euphoric, does not the rest of the world share the responsibility for keeping them that way?"
I also do not contend that aside from more public consumption "there appears to be no alternative for saving the U.S. and global economies." One of the prime issues delaying the United States' recovery has been the resistance of banks to loan bailout money from the Federal Reserve. The purpose of this money was to stimulate the economy, but instead of utilizing these funds to conduct business many firms have hoarded the funds as reserves. It also seems that firms in the United States have developed an attitude of "endless borrowing," meaning that instead of using what they are given as stimulus money they simply expect the Federal Reserve to lend them hundreds of billions of dollars whenever they are in trouble. If these behaviors and attitudes from the firm's side of the economy changed, the United States would certainly recover and the risk of future economic devastation would greatly diminish. From the consumer side of the economy an increase in saving and reduced dependence on economic bubbles would certainly provide economic stability for the future. There are clear alternatives for saving the United States economy aside from a relapse in consumer behavior. Changes in the banking sector's use of stimulus funds and lending timidity will boost the global economy, even if American consumers continue to save more and spend less.
Mr. Ishizuka devotes a considerable portion of this article to Japan's policies in the current crisis. He accurately points out that Japan, the biggest lender to the United States, has build strong financial assets and developed technological advantages. He focuses on the Japanese people's anxiety over their nation's economic future, especially with a lack of political leadership and policy direction. However Mr. Ishizuka fails to note that these uncertainties are prevalent throughout all global economies in the midst of the current crisis and therefore should not be sufficient reasons for the Japanese people to remain stagnant in stimulating their economy. Mr. Ishizuka should also be more optimistic in Japan's ability in shaping "a new world order" by realizing that Japan is already doing so. Japan has global strengths in energy efficiency, hybrid automobile technology, strong savings in the consumer sector, strong R&D investment and a no-nonsense foreign aid policy, all of which constitute "global leadership potential." Japan needs to act quickly, however, otherwise its global leadership potential will never materialize due to the emergence of other economic and political superpowers in Asia, most notably China.
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