Chapter 191 - Name and Reality 114 {142 Alone} (337-339 The Bubble and Experience - Showa Financial Crisis)
On the other hand, there were a few people who, based on their own experiences and those of their close associates, acted consistently without wavering in the dangerous currents of the Heisei Bubble era. However, before mentioning them, I will touch upon the "Showa Depression" that originated from the Great Depression, which was already mentioned during Oshima Kaiji's reminiscence, in a bit more detail.
In fact, in the 1920s before this Showa Depression, Japan had already experienced a long recession (including the Showa Financial Crisis) following a boom. The Showa Depression could be said to have been the final blow. It is necessary to look at this flow when taking a bird's-eye view of the flow from the occurrence of the bubble at the end of the Showa era to its collapse.
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Due to World War I, Europe became a battlefield, and the wartime and post-war demand for Europe brought a boom to Japan, which was unrelated to the damage of the war, in the late 1910s. As a result, shipbuilding, shipping, mining, and trading companies achieved good results in their businesses.
At that time, so-called "funa-narikin" (shipping nouveau riche) and trading companies that made a fortune in commodity trading (mainly metals) like Suzuki Shoten appeared. Incidentally, Suzuki Shoten was also called the "tetsu-narikin" (iron nouveau riche). The stock market was also in top form, and nouveau riche who made a fortune there also appeared. Furthermore, because the American economy was also firm during the same period, it was the best condition for the Japanese economy, which relied on exports to Europe and America.
During this time, industry advanced rapidly from being agriculture-based to industrialization, and heavy industries such as chemicals and metals were also becoming prosperous. The financial state of the Japanese nation also improved rapidly, turning from a debtor nation to a creditor nation, with revenue increasing and domestic infrastructure development progressing.
As a result, zaibatsu grew larger, and a shortage of "shokkou" (factory workers) occurred, causing their wages to skyrocket (so-called "narikin shokkou"). This brought about the transfer from the agricultural population to the industrial population and the influx of population from rural villages to cities.
However, at this point, it is necessary to pay attention to the fact that inflation, in which prices rose abnormally (prices doubled), had become a major social problem, and even though the economy was good as a whole, people who said their lives were difficult appeared one after another. It is said to be caused by the domestic production system not keeping up with global demand and the rapid population increase in urban areas. Because of that, the Rice Riots, famous in history, and the activation of labor movements also occurred during the same period.
In the Bubble economy, for the common people in the Tokyo metropolitan area, acquiring real estate was a fairly desperate situation, but the living standard was rather rising (because it was a boom led by domestic demand. Also, the rapid yen appreciation, which also had the aspect of lowering prices ironically, worked well) compared to that, the difference is prominent.
However, in the boom at that time, the factor for such a large gap was that the distribution of wealth to the general public (although there were exceptions such as the nouveau riche factory workers) was not functioning well. For the benefit of some people, further inflation was invited, but for those who did not have that benefit, there was a reality that it was merely excessive high prices. Far from the "boom without a real sense" pointed out recently, a complete reversal of the "sense of the economy" was occurring between companies and the common people.
The "Izanami Boom" from 2002 to the Lehman Shock and the Abenomics boom from 2012 are called long-term booms in terms of numbers, but are said to be "booms without a real sense" centered on large companies, and it can be said that extreme examples of that had already occurred before the war. Also, the current soaring wages of construction workers and the flow of nouveau riche factory workers in connection with the reconstruction of the Great East Japan Earthquake and the Olympic construction demand show commonalities with recent times.
Currently, in terms of high prices, even the inflation target of about 2% is completely unachieved, and it is said that Japan is still under deflation, but there are also views that it does not necessarily reflect the actual situation, such as the decline in the savings rate, the increase in zero-savings households (conversely, the average savings amount is rising), and the rapid increase in the Engel's coefficient, and it is also possible to see that a further deformed figure of Japan's current economic situation existed in the 1920s.
After that, in the early 1920s, the reaction to that wartime demand came out and became a post-war recession. Nevertheless, many common people were happy that prices had fallen, and it is said that voices even rose saying that a recession was better.
※※※※※※※ [Author's Note: Reference - especially "Inflation and People's Lives onwards"]
https://ja.wikipedia.org/wiki/大戦景気_(日本)
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Furthermore, the Great Kanto Earthquake that occurred on September 1, 1923, dealt a further blow to this situation. At this time, the government, concerned that it would affect settlements between companies, allowed a grace period for payments for bills that could not (or were likely not to) be settled by the deadline, or had the Bank of Japan pay in advance as earthquake bills and make provisional payments before the settlement period with a limit of two years (the period was extended several times), but bills that had become non-performing loans under the recession, unrelated to the earthquake, were mixed in here, and would later turn into new non-performing loans and affect the Japanese economy.
Also during the same period, Japan had been trying to return to the gold standard since World War I, but it was in a shelved state due to economic turmoil. However, whether it was seen through by speculators, the yen without the backing of gold holdings became a target of speculation, and the dollar-yen exchange rate was fluctuating wildly. Because of this, the business world urged a quick return to the gold standard, and there was a conflict between the opinion that the disposal of non-performing loans (including earthquake bills) for that purpose was urgent and the opinion that non-performing loans would be naturally resolved by the transition to the gold standard.
Note that for the return to the gold standard, the (gold) parity, that is, how much gold weight is made equivalent to a certain currency unit such as 1 yen or 1 dollar, is important (as a result, it is almost the same system as the fixed exchange rate system with each country's currency), but whether to make it 0.75mg of gold = 1 yen (100 yen = 49.875 dollars) as determined by Japan's Currency Law before the abandonment of the gold standard, or to devalue it (that is, lower the currency value) and make 100 yen around 40 dollars, was a matter of dispute.
However, because the parity was already legally determined by the Currency Law, the political situation at the time made it difficult to amend the law, and many politicians and business people had the feeling that currency devaluation was a shame (the exact opposite of the recent belief in a weak yen), it was decided to return to the gold standard with the parity at the Currency Law's fixed price of 100 yen = 49.875 dollars.
For that purpose, the currency value had to be increased, and it was necessary to adopt an austerity policy for the purpose of financial stabilization. Under the command of Finance Minister Hamaguchi Osachi of the Second Kato Takaaki Cabinet, which was established in August 1925 (in the sense of transitioning to a single-party government), Japan would transition to a deflationary system all at once.
Naturally, the citizens were placed under a recession, but for the common people, compared to the inflation caused by a boom, a mild recession due to deflation was easier in real life due to the benefit of falling prices, so there is an ironic side that a mild recession was more welcomed than a boom at that time.
To repeat, during the later Bubble era, although there were inflation problems related to real estate due to soaring real estate prices, the lives of the common people themselves were relatively prosperous with overall active domestic demand. However, it can be highlighted that the pre-war boom concentrated profits in a few people, and the general public suffered more from inflation.
This is somewhat similar to Japan's recent economic situation. Note that during the high economic growth period, inflation tended to exceed the growth of wages and salaries, but because redistribution was functioning relatively well, it did not become such a serious problem.
After that, because Kato Takaaki died, in January 1926, the Wakatsuki Reijiro Cabinet was born, in which Wakatsuki Reijiro, who was the Minister of Home Affairs in the Kato Cabinet, was replaced as Prime Minister. The last Finance Minister in that Wakatsuki Cabinet was Kataoka Naoharu, but his slip of the tongue became a major problem.
At a Budget Committee meeting in March 1927, he mistakenly answered that the Tokyo Watanabe Bank had collapsed, and after that, depositors who withdrew their deposits rushed to that bank and other banks, resulting in a bank run. And this became the spark for the Showa "Financial" Crisis (different from the Showa Depression).
To this was added the fact that how many earthquake bills that had already become non-performing loans (that is, bills for the amount that should be repaid to the Bank of Japan, which had paid them in advance tentatively) were in the banks had become a black box before this, and there was already distrust in financial institutions, leading to anxiety about the entire financial system. As a result, the Wakatsuki Cabinet took responsibility for this and resigned en masse in March 1927.
Although the bank run related to this subsided in a few days for the time being, from the end of March to April, the earthquake bills held by the Bank of Taiwan became particularly problematic (bills related to the aforementioned Suzuki Shoten [at the time, one of the world's leading trading companies], which had become non-performing loans in the recession after World War I, were mixed in with bills related to general earthquake damage and had become earthquake bills, and the Bank of Taiwan held a large amount of them), and it could not receive special loans from the Bank of Japan (so-called Nichigin Tokuyuu), and a bank run occurred again, spreading confusion to other banks.
At that time, the Tanaka Giichi Cabinet had been inaugurated after the Wakatsuki Cabinet, and Takahashi Korekiyo, who was appointed as its Finance Minister, handled the situation, and by issuing a moratorium (payment grace period) and supplying as much cash as possible to the banks to remove the anxiety of depositors, he managed to overcome this financial crisis.
In July 1929, when the Lion Prime Minister Hamaguchi Osachi formed a cabinet following the Tanaka Cabinet, Hamaguchi carried out the return to the gold standard and the austerity policy line (although there was also an aspect of reducing the burden on the citizens by reducing military spending on the disarmament line) from the time he was Finance Minister.
However, basically, further deflationary policies under a recession, combined with the subsequent Great Depression, caused economic turmoil. In 1930, Hamaguchi was shot by a right-wing member who opposed the disarmament line, and he met with the tragedy of dying because of it.
The Showa Depression occurred exactly at this time, and the Inukai Cabinet, which was inaugurated in December 1931 following it, again made Takahashi Korekiyo the Finance Minister and steered from the previous deflationary policy (Author's Note 1: mentioned later) to an inflationary (reflationary) policy. Giving up on the return to the gold standard, he actively carried out public works through the direct underwriting of government bonds by the Bank of Japan (so-called fiscal financing) and increased military spending (Author's Note 3: mentioned later). This worked well, and the economic growth rate increased all at once, and the country escaped from the recession.
Note that because Prime Minister Inukai Tsuyoshi was assassinated in the May 15 Incident on May 15, 1932, the Inukai Cabinet ended suddenly, and after that, Takahashi Korekiyo served as Finance Minister in the Saito Cabinet with Saito Makoto as Prime Minister (which resigned en masse in July 1934 to take responsibility for the "Teijin Incident," a political and bureaucratic corruption case) and then in the Okada Cabinet with Okada Keisuke as Prime Minister until Takahashi himself died.
However, as mentioned before, this benefit was ultimately not received much in the Tohoku region due to the occurrence of the Great Famine and the Showa Sanriku Great Tsunami, and the swollen military spending eventually had to be steered toward reduction to suppress excessive inflation, which conversely bought the grudge of the military this time, and Takahashi would fall to an assassin's bullet in the subsequent February 26 Incident (occurred on February 26, 1936). And because the military could not be suppressed after Takahashi's death, military spending expanded even more rapidly (Author's Note 3) and led to a disastrous defeat. And after the war, Japan would suffer from hyperinflation.
Takahashi not only proved the difficulty of the "exit" of the reflationary policy with his own life ironically, but it can also be said that he contributed to the creation of the flow of the military's arrogance and military priority. For that reason, there is also an aspect that he unintentionally participated in Japan's subsequent disastrous defeat in terms of policy.
Also, there is a theory that the exchange rate depreciation and the accompanying increase in exports due to Takahashi's reflationary policy were criticized as "exchange rate manipulation" from abroad, which led to the "bloc economy" of the great powers. If that is correct, it is also noted just in case that it could even have been the trigger for a world war, let alone Japan's war.
If the amount of military spending increase had been operated in another form for a considerable amount, or added to public works (public works investment was called "Jikyoku Kyoukyuu Jigyou" [Emergency Relief Works], a public works project specialized for measures against rural recession, and a budget of 800 million yen was recorded and used in the three years from 1932 to 1934, and it was reasonably effective as a whole, but it did not go as far as completely rescuing the Tohoku region, which had become catastrophic due to famine and tsunami), there is a possibility that the military's arrogance could have been avoided to some extent (Author's Note 2: mentioned later). Furthermore, there is also a theory that Takahashi was demanding spiritual "self-reconstruction" from the rural areas and did not reach more active support. (Source: https://repository.kulib.kyoto-u.ac.jp/dspace/bitstream/2433/134314/1/eca1442_200.pdf)
Takahashi Korekiyo is undoubtedly a capable politician and practitioner, but although there is the unfairness of retrospective evaluation, it might be said that there were also aspects that could not be fully praised with both hands raised.
(To be continued)
※※※※※※※ [Author's Note: mentioned later]
◯Author's Note 1
The reason the gold standard is considered a deflationary policy is that because currency without the backing of gold owned by the state is not issued, it is difficult to produce inflation phenomena when compared to a managed currency system where currency can be issued freely, although there are risks.
◯Author's Note 2
The difficulty of this criticism in later generations, especially in terms of criticism, includes the premise of retrospective evaluation, as mentioned with Bank of Japan Governor Mieno, and it is probably a difficult point.
However, in the case of Takahashi, because there are overwhelmingly many parts that are rather unilaterally evaluated by famous economists and others recently, I dared to touch on it. Well, in terms of immediate effect for escaping from a recession, it might have been unavoidable at the time...
On the other hand, it is also said that in Takahashi Korekiyo's fiscal and economic policies, except for military spending and the aforementioned public works (Emergency Relief Works) investment, even if they increased nominally, they hardly increased in real terms due to inflation, and it was actually a very delicate active fiscal policy based on the premise of fiscal consolidation. It can be seen as a fact that Takahashi Korekiyo himself also based it on the premise of fiscal consolidation except for military spending etc.
https://diamond.jp/articles/-/63586?page=3
http://www2.analystkobo.com/others/takahashi3
As a criticism of Takahashi's fiscal policy, although it is somewhat biased, I will present an opinion based on one piece of data from a former bureaucrat (Note that there is data in the text that wholesale prices rose nearly 40% nominally, but there is also a story that the overall inflation rate itself was about 2%. Just like the question of how much the price index considers, while saying it "includes" it, the real inflation of more than 10% accompanying the extreme decrease in the content of processed food products recently, it might be a place where the evaluation of the inflation rate is difficult in various ways).
https://ameblo.jp/koshioheikuroh/entry-12260519789.html
◯Author's Note 3
Military spending, which was 460 million (about 31% of the national budget) in fiscal 1931, continued to increase rapidly to 700 million (just under 36%) in fiscal 1932, 880 million (about 39%) in fiscal 1933, 940 million (just under 44%) in 1934, and 1.03 billion (about 47%) in fiscal 1935. In fiscal 1937 after the assassination of Takahashi Korekiyo, it jumped up to just under 3.3 billion (just under 70%) all at once, and Japan would rush down the path to militarism without brakes.
However, regardless of the percentage of the national budget, the nominal amount also had a "padding" effect in the reflationary policy, and it can also be seen that it did not increase that much when viewed in real terms.
https://www.teikokushoin.co.jp/statistics/history_civics/index05.html
September 3, 2018: partial addition; October 10: partial re-addition
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Now, I have explained that the financial system was considerably damaged from this Showa Financial Crisis to the Showa Depression. At that time, there was a serious deflation, and it is necessary to pay attention to the fact that real estate prices, which banks had as collateral, also suffered a blow across the board.
In other words, in addition to the difficulty of recovering loans due to the recession, the collateral was not functioning as collateral. For a while after this, it is also said that the Ministry of Finance at the time instructed each bank that the real estate collateral evaluation value should be suppressed to about 20% of the market price.
On the other hand, there is a person who utilized this "experience" in the later Bubble era. That is Hirano Shigetaro, the third president of Shizuoka Bank, which was even given the nickname "Shibugin" (Stingy Bank) as a play on Shizugin, and the executives of the Bubble era who received his training (especially President Sakai).
Hirano was the son of the manager of Enshu Bank, one of the predecessors of Shizuoka Bank, and later made efforts to merge it with Shizuoka Sanjugo Bank. He established Shizuoka Bank in 1943. When he took office as president in 1949, he served until 1970. He was also a banker to the extent that he served as the chairman of the Regional Banks Association of Japan.
His belief in bank management was exactly "steadiness," and he sought stability that was not washed away by the trends of the times. It is no exaggeration to say that his belief was born from the actual experiences he cultivated in his banker life during the turbulent periods from before the war to the post-war period and the high economic growth period.
That stance appeared most prominently in the later Bubble economy. While banks all over Japan were eager for real estate investment and real estate loans that were easy money, the belief and experience of Hirano, who was still alive even though he was over 100 years old and had a strong influence, were utilized in the management decisions of the active executives, especially President Sakai. Surprisingly, during this period, they moved in the direction of avoiding real estate-related loans as much as possible.
From the trend of the times, it was a decision that could be seen as defeatism or a suicidal act for a bank, but the "experience" of the pain that "real estate prices cannot be relied upon" in the Showa (Financial) Crisis era had been passed down to the bank culture of Shizuoka Bank, and it worked well. Shizuoka Bank did not waver at all even in the collapse of the bubble, and in the turbulent period after the collapse of the bubble, it further enhanced its position as the leader of regional banks.
It was in stark contrast to other banks that repeated loans far exceeding the original collateral value based on the logic that "real estate value does not fall," called the "land myth" during the same period, and real estate companies that were flipping real estate on paper and suffered great pain in the collapse of the bubble.
And that land myth was a myth unique to Japan, where there was a large population in a small land area and post-war high economic growth, but the difference between the bank where the top management had "experienced" with their own bodies that it had actually already collapsed once before the war and that experience had been "transmitted" to the successors, and the banks that were not so, had come out clearly.
Even if it is quite unreasonable to suddenly compare the management level that survived the rough waves of the bubble collapse with high insight and a mere person on the street, the difference between the person who faced the times with their own responsibility and judgment and the person who forgot their own remarks and wavered with retrospective evaluation is clearly shown. Naturally, a person who has a certain position or responsibility but can only make remarks of the same level as that should be strongly criticized.
※※※※※※※ [Author's Note]
However, I feel that this extreme stability-oriented nature seen in Japanese banks is also one of the fundamental reasons why ventures do not grow very well in Japan, so I am a bit hesitant to praise it excessively, but in terms of the stance of not being danced around based on past experience, I think we should still have respect.
Reference: http://blog.livedoor.jp/omttm202/archives/51281798.html
http://www.takeuchikeizai.jp/others/sonota/sonotaron-200302.html
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