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Americans have long been warned that running large, continuous deficits courts disaster. ‘We are living on borrowed money and borrowed time’, was the way Walter Mondale put it to the 1984 Democratic Convention, when the US government's cumulative deficit was some $7 trillion less than it is today. Three years later, a spate of cartoons and op-eds would depict the 1987 stock-market crash as a vicious hangover; the just deserts of a wastrel nation. The ever- accumulating deficits so frightened the first President Bush that he famously reneged on his ‘read my lips’ promise not to raise taxes. In 1992, Ross Perot launched the most successful third-party presidential candidacy since Eugene Debs by making the rivers of red ink his central campaign issue. Clinton's great boast was that he managed temporarily to close the government deficit, although the trade deficit continued to grow during his administration.
[1] ‘A Word from a Dollar Bear’, Forbes, 10 January 2005, describes Buffett's shorting of the us dollar.
[2] See David Smith, ‘Sinking Dollar Could Put the Whole World in a Skid’, Sunday Times, 30 January 2005.
[3] Volcker summarized the speech in ‘An Economy on Thin Ice’, Washington Post, 10 April 2005.
[4] Thus the additional costs incurred by the Pentagon during the first year of the occupation of Iraq were roughly equal to the incremental purchases of us Treasury securities by the central banks of Japan, China, South Korea, Hong Kong and Taiwan. As long as those central banks do not sell these securities (or fail to roll them over when they mature), Washington bears no additional financial burden in mounting a vast military operation, beyond the (relatively) modest interest payments. Taxes need not increase; Americans need not work harder to produce more goods for export or reduce their consumption in order to pay foreigners back the money they have borrowed from them.
[5] The effect of contemporary events in Egypt and Turkey on the thinking of the Meiji leaders is described in E. H. Norman, ‘Japan's Emergence as a Modern State’, in John Dower, ed., Origins of the Modern Japanese State: Selected Writings of E. H. Norman, New York 1975, pp. 223-4.
[6] See Karel van Wolferen's discussion of how the question of the right to rule—'the most fundamental problem of Japanese political life’—has plagued the country's modern history in The Enigma of Japanese Power, London 1989, chapter 12.
[7] The ‘alliance’ is in fact a protectorate since it imposes no formal obligations on Japan other than to host American military facilities, whereas the US is legally obligated to come to Japan's defence in the event of an attack.
[8] Mikuni Akio and R. Taggart Murphy, Japan's Policy Trap, Washington dc 2002.
[9] Leon Hollerman, ‘The Headquarters Nation’, National Interest, Fall 1991.
[10] ‘Sukyandaru ni yotte Nihon Kenryoku Kikou wa Ikinobiru’ [The Structure of Japanese Power depends on Scandals], Chuo Koron, October 1991, pp. 186-94.
[11] Horie was finally released on bail in April 2006.
[12] See, for example, Deepak Lal, ‘Ending China's Financial Repression: Foreign Exchange Reserves and State Enterprise Reform’, Paper for Cato Institute Annual Monetary Conference on ‘Monetary Institutions and Economic Development’, Washington dc, 3 November 2005.
[13] Mikuni Akio, ‘Doru Yasu Koso Nippon no Chiansu’ [It is a falling dollar that gives Japan its chance], Voice, August 2006, pp. 196-203.
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