Princes of the Yen: Central Banks and the Transformation of the Economy

"Only power that is hidden, is power that endures."

Central Banks are some of the most secretive and misunderstood institutions in the world. What powers do they wield? Who’s interests do they serve? How do their actions affect our everyday lives?

Set in 20th Century Japan, the documentary explores the role and power of Central Banks, and how they can be used to change a country's economic, political and social structures.

A documentary based on a book by Professor Richard Werner.

“Mastery of filmmaking. An engaging and dynamic narrative supported by visual aesthetics”

Simeon Roberts - Film Critic, http://filmgods.co.uk/

"Essential viewing if you've any interest at all in economics or politics" - Steve Morrissey
Film Reviwer & Critic, http://www.moviesteve.com/review-princes-of-the-yen-2014/

“Blows open the widely held consensus that ‘independent’ central banks are a force for economic good." Josh Ryan-Collins - New Economics Foundation and co-author of “Where Does Money Come From?"

"A fascinating look at the need for better public understanding of just how much money can affect the world we live in.” Ben Dyson - Founder Positive Money & co-author of ‘Modernising Money’

Website: http://princesoftheyen.com/

This is a film about
the power of central banks.

Central Banks have
the power to create

economic, political and
social change.

This is how they do it…

Pearl Harbor - 7th December 1941

A film based on a book
by Professor Richard Werner

Long live the imperial army.

Princes of the Yen

Central Banks and
the Transformation of the Economy

I pledge allegiance

to the flag of the
United States of America.

The atom bomb.

The American Occupation

LOUDSPEAKER: We will arrive at
Yokohama at 09:30 hours,

debarkation priority will be
in accordance with

the debarkation schedule.

General Douglas MacArthur arrived
at Atsugi Naval Aerodrome,

near Yokohama, on August 30, 1945.

As he emerged from his aircraft,

he paused at the top of the steps,

stuck one hand in his hip pockets,

tightened his jaws around
his corncob pipe,

and surveyed the conquered lands.

This pose was repeated several times
from different angles,

so that all the press photographers
could get a decent shot.

Democracy was to be instilled
in the Japanese people,

as though
they had never heard of it.

NEWS: Our problem’s in the brain
inside of the Japanese head,

these brains like our brains
can do good things,

or bad things,

all depending on the kind of
ideas that are put inside.

Kabuki plays featuring loyal samurai

were banned or heavily censored,

as were books and films about the
bombings of Hiroshima and Nagasaki.

Satirical cartoons of MacArthur

and mention of occupation censorship
were strictly forbidden.

WAR CRIMES TRIBUNAL: The commission
finds you guilty as charged

and sentences you
to death by hanging.

NEWS: Yamashita thanked the commission
for the fairness of his trial.

Prime Minister at the time of
the war in the Pacific,

General Tojo,

remarked during his trial,

“none of those Japanese, would dare
act against the Emperor’s will.”

The cross-examination
was immediately cut short,

and a week later
Tojo dutifully stated

that the Emperor had always loved
and wanted peace.

NEWS: General Hideki Tojo,

who assumed official responsibility
for the conduct of the war

and did everything possible
to exonerate his emperor.

MacArthur would later remark
to the U.S Senate,

that in terms of modern civilization

the Japanese were like
a 12-year-old boy.

You are interested in the unknown,

the mysterious, the unexplainable,

that is why you are here.

When the war was over

bank’s loan books had deteriorated.

The assets the banks held
were mainly war bonds

and loans to destroyed industries.

As such the whole banking sector
was virtually bankrupt.

This problem was easily solved by
the Bank of Japan,

all it had to do

was buy the banking sector’s
bad papers

with newly created reserves.

Giving them good money for assets,
which were often worthless.

The first two post war
central bank governors

were nominated by the US occupation.

Eikichi Araki was appointed
the first post-war governor

of the Bank of Japan.

But soon after taking up this post,

he was indicted by
war crimes prosecutors

and had to resign.

Then in 1951,

after a general amnesty on suspected
war criminals filling public offices,

he was made ambassador to
the United States.

On returning from his post
as ambassador in 1954,

Araki was again made governor
of the central bank.

After the 1951 amnesty
for war criminals,

much of the Japanese
wartime bureaucracy

was returned
to their wartime positions.

This included wartime politicians

and most home ministry bureaucrats

who had been in charge
of the thought police,

a number of whom
moved to the education ministry.

US ARMY: Japan is the key
to the fate of the Far-East,

once again for the second time
in the march of modern history,

those words have urgent reality.

In order to avert
the kind of rural unrest

that was helping the communists
in China,

the Americans initiated
the redistribution of land

from big landowners to their tenants.

The capitalist elite in Japan,

known as the Zaibatsu,

were purged as supporters of
a criminal war

and prohibited from
further business activity.

The fascist policies of the 30s

that the reform fascist bureaucrats
could not implement during the war,

the US occupation
managed to complete,

like the land reform
and the zaibatsu policy.

Yes it’s a very funny encounter

of Japanese wartime fascists
and American new dealers.

The Post-Occupation Political System

NEWS: The Diet, home of Japan’s
Senate and House of Representatives.

NEWS: In Japan,
fanatic students and leftist groups

rioted for days on end

seeking to block the mutual
defense treaty with America.

The socialist deputies
staged a riot in the diet itself.

The police in restoring order,

also evicted the socialists.

NEWS: The speaker was carried to
the platform and called to order

the session that approved the treaty.

In 1957,

the former Class A war crimes
suspect, Kishi Nobusuke,

became prime minister of Japan.

He had been General Tojo’s
minister of commerce and industry

during the war,

where his responsibilities
had ranged

from munitions to slave labor.

While Hitlers’ war economy minister

was in Berlin Spandau prison,

Albert Speer,

his Japanese wartime colleague
was prime minister of the country.

Although Kishi became a defender
of democracy after the war,

before and during the war,

he had described himself
as a national socialist.

With money from crime syndicates,

industrial corporations

and CIA slush funds,

Kishi built
the Liberal Democratic Party

into a powerful political machine.

In Japan,

many of the most important post-war
economic and political leaders

came from an elite group
of wartime bureaucrats,

the very same people

who had pushed Japan

into the war.

The Liberal Democratic Party

stayed in power for almost 40 years.

NEWS: Welcome home in Japanese
to these American soldiers.

After a tour of duty in Korea

they are returning to
their base in Japan,

where once a short time before

they were stationed as
occupation troops.

And how do they return?

How are they received by the
people whose land they occupy?

Not as overlords,

not as antagonists,

not as men who are distrusted
and feared and resented,

but as friends.

The War Economy System

In Tokyo's Central Chiyoda Ward,

the Ministry of Finance
had its headquarters.

From here,

the ministry controlled most aspects
of economic life in Japan.

The Ministry of Finance was
the most powerful ministry

and the Bank of Japan had
to report to the Ministry of Finance.

Ministry of Finance officials

elicited deep and hushed
exclamations of awe and respect

and former ministry bureaucrats

obtained influential posts as heads
of public and private institutions.

But in one area

the ministry did not have
actual control,

and that was the quantity of
credit creation and its allocation,

which was decided by
the Japanese Central Bank,

the Bank of Japan.

They told the Ministry of Finance

and the public and the journalists;

“we run monetary policy
through interest rates.”

And they let the Ministry of Finance
reign

in their interest rate policies,

but the rule was done through,
not interest rates,

which is the price of money,

it was done through
the quantity of money.

Window Guidance:

A process by which a
central bank imposes

credit growth and allocation quotas
on commercial banks.

It worked this way,
it’s called window guidance.

The Bank of Japan just told the banks

how much they will have to
lend in the coming quarter

and who, which sector
of the economy to lend to.

it's credit allocation,
credit control.

The Bank of Japan gave quarterly
instructions to individual banks,

on the value of loans

and which industrial sectors
they should be allocated to.

All loans were broken down
in sectors and sub-sectors,

and large-scale borrowers
had to be listed by name.

The Bank of Japan could decide

which projects should be encouraged

and which should be discouraged,

by dictating to whom and for what
banks could issue loans.

This was the war economy system

adapted to the production of
consumer goods.

NEWS: The 95 million people of Japan

now enjoy a national income
second only to the United States

and the more prosperous nations
of Western Europe.

It’s not a good system for
capitalists,

But for the population
it created a lot of wealth,

very even income and
wealth distribution,

very high growth,

and very rapidly raised quality
of life and standards of living.

In 1959 alone,

the economy expanded by 17%.

But a result of the
war economy system

was that entire industrial sectors

would compete not for profit,

but for market share.

Companies would fight
until bankruptcy

to gain market share.

This phenomenon was soon recognized

and called “excess competition”.

The solution was the creation of
explicit or implicit cartels.

In the banking sector,

window guidance acted as the
cartel control mechanism,

because the Bank of Japan
could dictate

the number and value of loans
that banks issued.

As a result bank rankings never
changed during the post war era,

except after mergers.

According to one banker,

“if it were not for window guidance,

we would compete until hara-kiri.”

The War Economy and
International Trade

NEWS: The US current account deficit

surges to its highest level
in 9 years,

the size of the increase took
many economists by surprise.

While cartels controlled
competition within Japan,

there were no such limits when
it came to international markets.

Japanese corporations
soon became dominant

in many markets in the world.

In America, formal congressional
hearings were held

under the title

“Japanese productivity–lessons
for America.”

Leading economic theories indicate

that only free markets
can lead to success.

But Japan rose within decades

to become the second
largest economy in the world

without relying only on the
“invisible hand” of free markets.

Japan’s postwar economy

was a fully mobilized war economy,

with production shifted from weapons

to consumer goods.

“It is better for the Bank of Japan
not to attract attention

and remain as quiet as
the forest of a rural shrine.”

(Hisato Ichimada,
18th Governor of the Bank of Japan)

Since the Bank of Japan presented
itself as a champion of free markets,

window guidance was an embarrassment.

Official publications either
failed to mention it

or downplayed its role

by calling the credit controls
“voluntary”.

Whenever the Ministry of Finance
would enquire

about the Bank of Japan’s credit
creation and allocation policy,

Bank of Japan staff

would engage in complex discussions

full of technical jargon

to make the process appear
impenetrable to non-experts.

In November 1965,

the first batch of Japanese government
bonds came onto the market.

From now on,

when politicians
wanted to spend more,

they would no longer put
pressure on the Bank of Japan,

but instead exert it on
the Ministry of Finance.

So the ministry
would ultimately preside

over an ever-increasing
national debt mountain.

Central Bankers call for reform

The 1980s was an era of
financial deregulation

in the industrialized world.

Most industrialized countries

lifted their restrictions on the
movement of capital.

In Japan,

Tadashi Sasaki,

a former governor
of the Bank of Japan

called for a five-year plan

for the transformation and
liberalization of the Japanese economy.

Then, in 1986,

the "Advisory Group on
Economic Restructuring"

headed by the former Bank of Japan
governor, Haruo Maekawa,

proposed a ten year
economic reform plan

designed to make the
living standards of Japanese

more comparable to those
enjoyed in the West.

The proposal stated that:

"the time has now come

for Japan to make
a historical transformation

in its traditional policies on
economic management

and the nation’s lifestyle.

There can be no further
development for Japan

without this transformation."

The report

read like a wish list by
US trade negotiators.

It started with calls for
administrative reform

and the abolition of
bureaucratic powers.

The goal was the transformation

of the entire body politic,

the abolition of the
war economy system,

and the introduction of a
US style free-market economy.

Those members of the advisory group

who uttered dissent,

were relieved of their duties.

Reports in the press
were highly critical.

Observers recognized
the radical nature of the plan.

It seemed far too ambitious.

It was calling

for a wholesale revolution

of all parts

of the Japanese economic,
political, and social system.

Although the report was clear
about what was wanted,

it was embarrassingly silent

about how these goals
would be achieved.

The only clue hidden
in the report was,

“in the implementation
of these recommendations,

fiscal and monetary policy

have a significant part to play.”

The Bank of Japan

has always been on the record

that this Japanese system

should be scrapped,

and US style capitalism
should be introduced.

Whether you agree with that or
not is an entirely separate question.

Now the next question is,

how do you do that?

The Ministry of Finance
has been legally in control

for most of the post-war era,

we have entrenched
bureaucratic structures,

politicians, and all these cartels
and so on.

That was the old system,

well history teaches a system
only changes fundamentally

if there is a crisis.

The commission proposed

that monetary policy should be
used to promote a historic crisis,

sufficiently large to overcome
the vested interests of

the Ministry of Finance, politicians
and corporate Japan.

Every system

has groups that benefit from it

and hence have no desire
to change it.

There is probably no country
in the world

that has changed its economic,
social, and political system

in a significant way
without a crisis.

It is the crisis

that convinces citizens and
interest groups

of the need for change.

How can you achieve this?

Well you need a crisis,

and the best way to create it,
is to have a bubble,

because that is how nobody stops you.

How to create a Bubble

The Bank of Japan

began to significantly increase
window guidance loan quotas.

Average yearly loan growth quotas

were close to 15% in the late 1980’s.

One city banker would later remark:

"during the bubble, we wanted
a certain amount of loan increases,

but the Bank of Japan
wanted us to use more.

Young people in their 20s and 30s

on modest salaries

were able to buy

second and third homes.

The credit boom

caused not only a boom
in real estate,

but also in the stock market.

Between 1985 and 1989,

stocks rose 240%

and land prices 245%.

By the end of the 80’s,

the value of the garden surrounding
the Imperial Palace in central Tokyo

was worth as much as
the entire state of California.

Although Japan is only 1/26th
of the size of the United States,

its land was valued at four times
of that of the United States.

The market value of a single
one of Tokyo’s 23 districts,

the Central Chiyoda Ward,

exceeded the value
of the whole of Canada.

Economists,

who are trained to believe
in market outcomes,

tried to justify
the high land prices.

Some thought land scarcity
was the reason.

Shiny new corporate headquarters

rose in Tokyo’s posh
business districts.

The labor market boomed so much

that there was a genuine fear
of a serious labor shortage.

Companies started to invite
final year university students

on expensive trips to holiday resorts

to entice them to sign up.

The politicians loved it,

the Ministry of Finance loved it,

tax revenues were going up.

The companies loved it.

Every day was like a festival,

we girls were taken out,

and everything was always paid for
by guys and bosses.

No-one used public transport
to get home,

we always got a taxi.

With asset and stock prices
rising inexorably,

even traditional manufacturers
could not resist the temptation

to try their hand
at playing the markets.

Soon they expanded their
finance and treasury divisions

to handle the speculation themselves.

These company hedge funds,

known as Zai Tech

used borrowed money to engage
in property and share speculation.

The frenzy reached such proportions

that many leading manufacturers,

such as the carmaker Nissan,

made more money through
speculative investments

than through manufacturing cars.

Literally thousands
of articles were written

on the new Japanese miracle economy.

A common explanation by economists

was that high and rising productivity

explained the impressive performance
of Japan’s economy.

Books on Japanese
management techniques

became international bestsellers.

Western businessmen

read 17th-century tracts
on samurai strategies.

In reality,

Japan’s stellar performance
in the 1980s

had little to do with
management techniques.

Instead of being used
to limit and direct credit,

window guidance was used
to create a giant bubble.

I conducted research interviewing
Bank of Japan officers and bankers,

both sides, on tape.

The result was,

the Bank of Japan did continue
its informal guidance,

in fact it was
the Bank of Japan

that forced the banks to
increase their lending so much.

The Bank of Japan knew

that the only way for banks
to fulfill their loan quotas

was for them to expand
non-productive lending.

In the words of one Banker:

"if there is no demand for credit
from low-risk borrowers

and we want
to use up the quota,

the risk gets worse."

Another banker is quoted as
saying that

"a side effect of the window
guidance rule of loan increases

was that banks increased lending

even when there was no loan demand."

Money Creation and the Bubble

Like all bubbles,

the Japanese bubble

was simply fuelled by the
rapid creation of new money

by the banking system.

Between 1986 and 1989,

Toshihiko Fukui was the head of
the Banking Department

at the Bank of Japan,

this was the department that was
responsible for

the window guidance quotas.

When Fukui was asked by a journalist,

“borrowing is expanding fast,

don’t you have any intention of
closing the tap on bank loans?”

he replied,

“because the consistent policy of
monetary easing continues,

quantity control of bank loans
would imply a self-contradiction.

Therefore we do not intend to
implement quantitative tightening.

With structural adjustment
of the economy

going on for quite a long period,

the international imbalances
are being addressed.

The monetary policy supports this,

thus we have the responsibility to
continue the monetary easing policy

as long as possible.

Therefore it is natural
for bank loans to expand.”

Why were the banks lending so much?

Because they were forced to do so

by the orders of the Bank of Japan.

Normally,

banks choose clients from among
a large number of loan applicants,

turning down
a significant percentage.

But from 1987 onwards,

the tables had turned,

it was the bankers

who were aggressively pursuing
potential customers.

Anecdotes abound

about how banks were soliciting
loans at bargain interest rates,

pursuing clients like street peddlers.

The banks were encouraging
people to borrow money.

For example

when a newly wed couple
wanted to buy a house,

banks would offer them

double the amount they asked for.

Bankers made increasingly
exaggerated assessments

of land value,

so that the actual ratio
of land value to loan

often jumped to 300% or more.

To the public this was
a strange phenomenon.

People soon dubbed it

"excess money".

Only economists,

analysts,

and those working in
the financial markets

or for real estate firms
knew better.

They dismissed such
simplistic analysis.

Land prices were going up

due to far more complicated reasons

than just excess money,

they claimed.

Ordinary people simply did not
understand the intricacies

of advanced financial technology.

International Capital Flows

When a country creates
too much money,

some of that money spills out abroad

in the form of investments.

In the 1980s

Japanese capital flows multiplied

from a net inflow of
more than $2 billion

in 1980

to an outflow of $132 billion

in 1986.

Assets, including art objects
and other valuables

all over the world

became targets for Japanese buyers.

There were high-profile purchases

such as the Rockefeller Centre,
Columbia Pictures

and Pebble Beach Golf Course.

Japanese money

bought a staggering 75% of
all United States treasury bonds

auctioned off in 1986.

But it is not easy

for a country to just print money

and then go on a shopping spree
around the world.

Japan was able to do this

because the markets
did not devalue its currency.

The value of individual currencies

is set by currency dealers,

If the traditional indicators

that the currency dealers watch

do not pick up the excess money
creation in the country concerned,

then creating large amounts of money

and trying to exchange it
for foreign currency,

can work.

Japan had pulled off the same trick

that the United States had used

in the 1950s and 1960s,

when US banks
excessively created dollars.

Corporate America used this hot money

to buy up European corporations.

While the United States

had the cover of
the dollar gold standard,

Japan’s cover
was a significant trade surplus.

Non-GDP based loan:

A loan, which is not used for
the production of goods or services.

An early warning indicator

of the buildup of systemic risk
in the banking system

is the ratio of loans for
non-GDP-based transactions

to total loans.

This ratio increases significantly
in most countries

that are subsequently struck
by a banking crisis.

It was this same process

that fueled the mortgage lending
and house price booms

in the United States and
the United Kingdom

in the 1980s and the 2000s.

The same process also created
the golden twenties:

in the 1920s,

United States banks
lent with stocks as collateral.

The principle remains the same.

As each bank took
the stock price as a given,

it created new money.

With more money in the stock market,

stock prices had to rise.

Each bank thought it was safe

accepting a certain percentage of
the value of the stock as collateral,

but the actions of all banks
together,

drove up the overall market.

In Japan,

total private sector land wealth

rose from ¥14.2 trillion in 1969

to 2000 trillion yen in 1989.

At his first press conference

as the 26th governor of
the Bank of Japan,

in 1989,

Yasushi Mieno said that,

“since the previous policy of
monetary easing

had caused
the land price rise problem,

real estate related lending
would now be restricted.”

He looked around,
looked at the bubble,

asset prices rising, the gap between
rich and poor getting bigger,

lets stop it.

His name was mister Mieno,
and he was a hero in the press,

because he fought against
this silly monetary policy.

But he was deputy governor
during the bubble era,

and he was in charge
of creating the bubble.

The Crash

All of a sudden

land and asset prices stopped rising.

In 1990 alone,

the stock market dropped by 32%.

Then in July 1991,

window guidance was abolished.

This took
the window guidance officers

at the Bank of Japan
themselves by surprise.

Bankers were left almost helpless.

They complained
that they did not know

how to make their
lending plans anymore.

In the past
when a certain branch said

they would like to lend more,

they would respond that the window
guidance quota had been used up

now they couldn’t do that anymore.

As banks began to realize

that the majority of the ¥99 trillion
in bubble loans

were likely to turn sour,

they became so fearful

that they not only stopped lending
to speculators,

but also restricted loans
to everyone else.

NEWS: Well it’s a bleak Christmas
ahead for Japan,

the stock market on Monday

sinking to its lowest close
in over two years.

Last weeks collapse of one of
Japan’s biggest food traders

was the 9th time this year

that a listed company went under.

More than 5 million Japanese
lost their jobs

and did not find employment
elsewhere.

Suicide became
the leading cause of death

for men between the ages
of 20 and 44.

The papers ran stories

of people hanging themselves

or going missing

on an almost daily basis.

Between 1990 and 2003,

212,000 companies went bankrupt.

In the same period

the stock market dropped by 80%.

Land prices in the major cities

fell by up to 84%.

Some economists seemed relieved.

The downturn was evidence

that Japan’s economic system

was not so successful after all.

Meanwhile,

the Governor of the Bank of Japan,

Yasushi Mieno, said that:

“thanks to this recession

everyone is becoming
conscious of the need

to implement
economic transformation,”

The Failed Bailout

The Ministry of Finance,

believing that interest rates
were the main policy tool,

put pressure on the Bank of Japan
to lower interest rates,

until the official rate
reached 0.1%.

Most economists predicted
an economic recovery.

But despite frequent assertions
in the financial press

and by central banks

that lower interest rates
will stimulate growth

and higher interest rates
will slow growth,

there is no empirical evidence
for this relationship.

NEWS: Japanese and American
businessmen are meeting here

with a plea from Japan’s companies
for a lower yen.

Only 6% of Japanese exporters

can make profits with the dollar
at less than a ¥100.

On average they need
the American currency to rise

above ¥117 to break even.

The Ministry of Finance
asked the Bank of Japan

to sell large amounts of yen

and buy US dollars.

So that the exchange rate
of the yen would fall

and exports would pick up.

The two of them,

the Ministry of Finance (MOF)
and the Bank of Japan (BOJ),

they just don’t get along well.

And what has been happening
again this month

is that the Bank of Japan has been
sterilizing its own intervention,

to be precise,

the intervention ordered
by the Ministry of Finance.

The Ministry of Finance
tells the Bank of Japan

to go out and buy roughly 20
billion worth of US treasuries.

But, the Bank of Japan is
sterilizing this,

which means it is basically taking
the money from the economy

to fund this purchase.

Most researchers agree,

sterilized forex intervention
doesn’t work.

The BOJ is again sterilizing,

that’s why it doesn’t work,

that’s why the yen
has remained strong.

A central bank can withdraw money
from the economy

by selling its assets.

Just as it can inject money
into the economy

by buying assets.

When central banks
buy and sell assets,

they increase or decrease the amount
of money circulating in the economy.

Officials at the Bank of japan
ignored this,

and instead claimed that,

“this structural transformation
or reform

may produce deflationary forces
in the short run,

but will generate a much more
efficient economy after a while.”

Independent observers suggested that

domestic demand had to be boosted
by government spending,

and then loan demand would also rise.

For a decade,

the government followed
their advice,

boosting government debt
to historic levels.

Between 1992 and 2002,

10 stimulation packages worth
¥146 trillion were issued.

NEWS: Mr Richard Werner

is chief economist at Jardine
Fleming Securities in Tokyo,

he joins us now
to share his views on

where the Japanese
economy is heading.

The government was spending
with the right hand,

putting money into the economy,

but the fundraising was done
through the bond market,

and therefore it took the same money
out of the economy with the left hand.

There was no increase in
total purchasing power

and that’s why the government
spending couldn’t have an impact.

By 2011 Japan’s government debt
would reach 230% of GDP,

the highest in the world.

The Ministry of Finance
was running out of options,

observers began to blame
the ministry for the recession,

and started to listen to the voices

that argued that the recession was
due to Japan’s economic system.

But how difficult would it have been

to solve the problems of bad debt
in the banking sector,

and deflation?

It turns out that this would not
have been so difficult after all.

The financial system always looks
like Catch 22,

there’s no loan growth,
so there’s no economic growth,

so there’s no loan growth,
so there’s no economic growth.

Well, there is one thing that can
break through this circular argument,

that’s the central bank.

The job of the central bank in
this situation is to print money.

The Power of Central Banks

What we need now
is more radical measures,

and there are some painful ones,

but there are also painless ones.

The central bank could for example
just buy all bad debts at face value,

Japan would have the strongest
banks in the world.

To bail out the banking sector

a central bank can buy up
the bank's bad financial assets

with newly created money,

giving them face value for assets,

which are often worth
significantly less.

This is what the Bank
of Japan did after the war.

Alternatively, money could be
transferred to the banks

by helping them make
sizeable profits.

One way this can be achieved

is for the central bank
to corner a market

– in effect creating a mini bubble
in a certain market

in which banks invest heavily,

providing large profits for them.

This turns out to be
a relatively common technique

by central banks

to help their banking systems.

Other proposals include,

measures to introduce zero risk
borrowers to banks

or introducing accounting changes
that help their balance sheets.

In Japan, the authorities and
the Bank of Japan argued,

as did the Western powers
almost two decades later,

that the taxpayer
should foot the bill.

In March last year,

the government injected
a large amount of money into

some 15 major
Japanese financial institutions.

And we were one of them.

That helped us write off bad debts,

and also to beef up our capital base

so that we would be prepared to lend.

Tax money has been used
to recapitalize banks.

However, there is no evidence that
taxpayers have been responsible

for the bank’s problems,

therefore, such policies

have likely created a moral hazard.

The money supply

is determined by the net increase
in money creation

by banks and the central bank.

If moral hazard dictates that

the banking sector should
not be bailed out,

deflation and recession can still
be avoided by the central bank.

To do this,

the central bank can
increase the money supply.

A central bank can increase
the amount of money

in an economy at any time,

without limit,

by simply buying assets
from the private sector

and paying with
newly created credit.

The Bank of Japan could for instance

have bought real estate

and converted it into public parks.

And there is an opportunity here to
solve three problems in one stroke.

The economy needs money creation,

the banks need to get rid of
their bad debt

and the real estate sector
needs some transactions.

What you can do is just have
the central bank print money,

buy the land from the banks,

turn it into parks,

and you solve another problem,

quality of life in Japan.

Even if the Bank of Japan
would have later sold these parks

at a fraction of the cost,

it would still have made money,

because it costs
a central bank nothing

to create the money
in the first place.

Another option for injecting
money into the economy

is quantitative easing.

Despite having all these options
available,

the Bank of Japan at every stage
refused to implement policies

that would have resolved the crises.

When I was at the Bank of Japan
in 1992-1993,

as a visiting researcher,

I was convinced that this recession
was going to get really bad.

So I would ask any Bank of Japan
person who would talk to me,

why aren’t you printing more money.

I met one individual who
was quite open about this

and he said:

“Richard, sure we could have
printed more money,

we could have created a recovery,

but then nothing would have changed,

Japans economic structure
would not have changed.”

Now at that time I still
wasn’t ready to believe

that the Bank of Japan was
prolonging the recession

in order to get structural changes

that just seemed a bit too wild.

Finance Minister Masajuro Shiokawa
has turned to the Bank of Japan

asking it to help stop deflation,
or fight deflation at least.

The Bank of Japan consistently
defied calls by the government,

finance minister and prime minister

to create more money
to stimulate the economy

and end the long recession.

At times the Bank of Japan

even actively reduced the amount
of money circulating in the economy,

which worsened the recession.

The Bank of Japan’s arguments
always came to the same conclusion,

namely, that the blame lay

with Japan’s economic structure.

Central bank staff even argued

that significant monetary easing

“could cause harm”

by inducing “a further delay in the
progress of structural adjustment”.

The early postwar Japanese leaders

knew that they were
running a war economy,

but they chose not to talk
for political reasons.

The cold war propaganda message

was that post-war Japan

had adopted a US style
political and economic system.

Unwilling to tell the truth,

the early post-war leaders,

took their intimate knowledge

about the origins of Japan’s
miracle economy

with them to their grave.

A generation of
bureaucrats and politicians

reigned in the 1980s and 1990s,

who did not understand

the true character and purpose

of their own country’s economy.

A whole generation
of Japan’s economists

had been sent to the United States

to receive Ph.Ds and MBAs
in US style economics.

Since neoclassical economics assumes

that there is only one type
of economic system,

namely, unmitigated free markets,

where shareholders and
central bankers rule supreme,

many Japanese economists
quickly came to regurgitate

the arguments of US economists.

Dismantling The Ministry Of Finance

NEWS: The US and Japan closed two
days of insurance talks on Tuesday.

Primary sector deregulation

is needed to overcome
the entrenched interests

of large insurance companies,
life and non-life,

and the Ministry of Finance
bureaucracy.

They need to reach an agreement
before December the 15th,

after that date the US has
threatened to impose trade sanctions.

A key move analysts are expecting
is the securitization of real estate.

For more we are talking to
Richard Werner.

To have meaningful securitization,
we need deregulation,

and that’s already the
answer to your question,

to get deregulation you have to
reduce the power

of the Ministry of Finance,

and obviously the ministry
was resisting that.

In the 1980s,

persons who could introduce
themselves with a business card

from the renowned finance ministry,

elicited deep and hushed
exclamations of awe and respect.

But by the mid 1990's
attitudes had changed,

there now seemed little doubt

to most observers,

that the Ministry of Finance
had caused the recession.

Frequent demonstrations were held
outside the ministry’s doors,

by citizens disgusted by
the bureaucrat’s actions.

In early 1998

public prosecutors
for the first time raided

the most powerful
of Japan’s ministries.

Both banks and their regulators

were heavily criticized
for their actions.

Scandals highlighted some
of the informal links

that existed between Ministry of
Finance officials and bankers.

Many bank staff,

and even some ministry officials,

were arrested and imprisoned,

and several committed suicide.

As central banker
Masaaki Shirakawa had explained:

“it is not easy to change
the institutional framework

and promote structural reform

since it necessarily involves
the vested interests

of all the related
individual economic agents.”

While Yutaka Yamaguchi, a deputy
governor of the Bank of Japan,

had said that,

"the Bank of Japan
had faced the big dilemma

that monetary easing would produce
the mitigation of immediate risks,

which in turn would result

in a delaying of adopting
ultimate solutions."

From the mid 1990’s onwards

the Government began to dismantle
much of the power structure

of the Ministry of Finance.

The Bank of Japan on the other hand,

saw its influence
grow significantly.

NEWS: You have written
just recently,

“there is no doubt in your mind,

the Bank of Japan will be cut loose
from the Ministry of Finance

and become independent,

putting it on a footing
with other central banks.”

Why are you so sure?

The Ministry of Finance which
had been controlling

legally at least the Bank of Japan,

has lost all credibility.

The Ministry of Finance
is being blamed

for the creation of the bubble,

for the long recession and

for many other problems,
which we’ve had recently in Japan.

Whereas the Bank of Japan

has been out of the spotlight
of public criticism

and it’s using that now to say,

well, the MOF has been bad

we need independence now.

Richard, thanks very much.

I have been speaking to
Richard Werner

chief economist at
Jardine Fleming Securities in Tokyo.

Soon after his retirement

from the position of governor
of the Bank of Japan

in 1994,

Mieno embarked on a campaign
giving speeches

to various associations
and interest groups;

He lobbied for a change
in the Bank of Japan law.

His line of argument
was to subtly suggest

that the Ministry of Finance
had pushed the Bank of Japan

into the wrong policies.

To avoid such problems in the future,

the Bank of Japan needed to be
given full legal independence.

According to Mieno,

making central banks independent

reflected the human wisdom
that had been nurtured by history.

In 1998 monetary policy
was put into the hands

of the newly independent
Bank of Japan.

So you’re saying that
politicians as well as economists

should be putting more pressure
on the Bank of Japan

to create more money.

A lot of critics are going
to say that that

is intervening in the
central banks independence.

What do you make of that?

That’s exactly right,

that is intervening in the
central banks independence,

and that’s exactly what we need.

The Transformation Of
The Political System

The numerous scandals that followed
the bursting of the bubble

also brought down the 1955 system
of one-party rule

by the Liberal Democratic Party.

In the old system,

politicians did not compete
by proposing different policies.

Policy was made by the bureaucrats,

and politicians merely focused on
appeasing local constituencies

with public works projects.

In October 1997,

for the first time
in post-war history,

all policy initiatives
to stimulate the economy

originated from politicians,
not bureaucrats.

Then in early 2001

a new type of politician
was swept to power.

NEWS: Japanese Government bonds
staged their biggest rally this month

as Junichiro Koizumi emerged
as the hot favorite

to become the country’s
next prime minister.

Junichiro Koizumi
became prime minister.

In terms of his popularity
and his policies

he is often compared to
Margaret Thatcher and Ronald Reagan.

His message was simple,

no recovery
without structural reform.

At the Geneva summit in
July 2001 he said:

“Some say recovery comes first,
without reforms.

But if the economy recovers,

the will to reform will disappear.

Therefore, after the elections

I will continue with the plan

of no growth without
structural reform.”

During 2001

the message of no economic
growth without structural reform

had been broadcast
on an almost daily basis

on the nations TV screens.

NEWS: The countries at the G7 summit

are putting pressure on Japan
to implement structural reform.

In Korea there were riots,

but then the government decided
to break up large conglomerates,

now their economy is recovering.

Now is the time for Japan

to implement structural reform.

Now everyone believes
we need structural changes,

we need to scrap
Japanese style capitalism

to get a recovery,
why?

It seems we tried all the policies,

nothing worked,

so the Japanese style
economic system must be to blame,

so we better get rid of it.

The Transformation
Of The Economy

Japan was shifting
its economic system

to a US style market economy,

and that also meant

that the center of the economy

was being moved from
banks to stock markets.

To entice depositors to pull
their money out of banks

and into the risky stock market,

reformers withdrew the guarantee
on all bank deposits,

while creating tax incentives
for stock Investments.

As US style shareholder capitalism
spread

unemployment rose significantly,

income and wealth disparities rose

as did suicides and
incidents of violent crime.

Then, in 2002

the Bank of Japan strengthened its
efforts to worsen bank balance sheets

and force banks
to foreclose on their borrowers.

Until then, Hakuo Yanagisawa,

minister for financial services,

had resisted
the Bank of Japan inspired proposal

to inject tax money into banks,

effectively nationalizing them,

taking over their management

and using this power
to call in loans from companies,

thus triggering many bankruptcies
of large firms.

Mr. Yanagisawa was duly sacked
by the prime minister

and replaced with Heizo Takenaka,

Takenaka was a supporter of
the Bank of Japan’s plan

to increase
foreclosures of borrowers.

Minister Takenaka was trying
to implement a policy

to dramatically weaken
the balance sheets of the banks,

in order to allow him
to nationalize them.

Takenaka appointed a task force

to oversee the banking policies,

which included
two former Bank of Japan staff.

One of them, Takeshi Kimura,

immediately demanded that
accounting changes be implemented

which would worsen
bank balance sheets

and render nationalization
unavoidable.

Takuro Morinaga,
a well-known economist in Tokyo,

argued forcefully that the Bank of
Japan inspired proposal by Takenaka

would not have
many indigenous beneficiaries,

but instead

would mainly benefit
US vulture funds

specializing in the purchase
of distressed assets.

These vulture funds
had faced the difficulty

that despite over
200,000 bankruptcies,

few firms sufficiently large for
the vulture funds to be interested

were bankrupted.

When Kimura’s and Fukui’s support
for the bankruptcy plan was voiced,

the former operated
a private company

that advised on the securitization
of distressed assets

and the latter was an adviser

of the Wall Street investment firm
Goldman Sachs

one of the largest operators
of vulture funds in the world.

Mister Fukui,

also his mentor Mister Mieno,
and his mentor Mister Maekawa,

and you’ve guessed it,

these are some of the Princes of
the Yen that the book is all about.

They have said on the record
in the 80s and the 90s,

what is the goal of monetary policy?

It is to change the
economic structure.

Now, how do you do that?
Well, you need a crisis.

And that’s really
what they have done,

Richard, we’re out of time
I have to cut you off.

WHISTLEBLOWER: I work for one of
the big city banks.

I used to be in charge of liasing
with the bank of Japan.

During the bubble era

we were told every three months
by the Bank of Japan,

how much loans had to be
increased by.

The Bank of Japan window guidance
allocation was an order.

The cause of the bubble was
the window guidance,

and it was done on the order
of the Bank of Japan.

The department responsible

for the window guidance quotas
at the Bank of Japan,

was called the Banking Department.

And who was in charge of this?

The man at the head
of this Banking Department

during the bubble from 86-89

was Toshihiko Fukui.

Mister Fukui, the current governor
of the Bank of Japan,

he’s the man who created the bubble.

When Fukui had become
governor of the Bank of Japan,

he would say:

“while destroying the
high-growth model,

I am building a model
that suits the new era.”

They have succeeded on all counts.

If you look at the list
of their goals.

They’ve reached all those goals,

destroy the Ministry of Finance,
break it up,

get an independent
supervisory agency,

reach independence for
the Bank of Japan itself

by changing the Bank of Japan law

and engineer deep structural changes
in the economy

by shifting from
manufacturing to services,

opening up, deregulating,

liberalizing, privatizing,

the whole lot.

In the 1920s,

Japan’s economy in many ways
resembled today’s U.S economy

– with fierce competition,
aggressive hiring and firing,

takeover battles
between large corporations,

few bureaucratic controls,

strong shareholders that
demanded high dividends,

and corporate funding from
the markets, not banks.

Yet throughout the postwar era,

Japan’s economy
had been the opposite:

highly regulated,
with cartels limiting competition,

bank financing and cross shareholdings

reducing shareholder power,

no takeovers,
and a frozen labor market

with lifetime employment
and seniority pay.

It was claimed that to end the
recession and improve performance,

Japan must shift from
welfare capitalism

back to shareholder capitalism.

Yet it remains unclear

why a country that had run
a consistent and significant

balance of trade surplus

would need to change
its economic system

to become more competitive.

The Southeast Asian Crisis

Japan was not the only
high-performance economy in Asia

that in the 1990s

found itself in the deepest
recession since the great depression.

In 1997, the currencies of the
Southeast Asian Tiger Economies

could not maintain a fixed
exchange rate with the US dollar.

They collapsed by between
60 and 80% within a year.

The causes for this crash
went as far back as 1993.

In that year,

the Asian Tiger Economies,
South Korea, Thailand and Indonesia

implemented a policy of aggressive
deregulation of the capital account

and the establishment of
international banking facilities

which enabled the corporate
and banking sectors

to borrow liberally from abroad

–the first time in the post-war era

that borrowers could do so.

In reality, there was no need
for the Asian Tiger Economies

to borrow money from abroad.

All the money necessary
for domestic investment

could be created at home.

Indeed, the pressure
to liberalize capital flows

came from outside.

Since the early 1990s,

the IMF, the World Trade
Organization, and the US Treasury

had been lobbying these countries,

to allow domestic firms
to borrow from abroad.

They argued that
neoclassical economics had proven

that free markets and
free capital movement

increased economic growth.

Once the capital accounts
had been deregulated,

the central banks set about
creating irresistible incentives

for domestic firms
to borrow from abroad.

By making it more expensive to borrow

in their own domestic currencies

than it was to borrow in US dollars.

The domestic local interest rates

were higher than
the US dollar interest rate,

and the exchange rate
was virtually fixed.

It was the government
and the central bank

that said we will
maintain the exchange rate.

That’s right, central banks
of Thailand

and other East-Asian countries

resisted exchange rate adjustment

and they tried to send a signal

that they would protect
the exchange rate.

The central banks emphasized
in their public statements

that they would maintain fixed
exchange rates with the US dollar.

So that borrowers
did not have to worry about

paying back more
in their domestic currencies

than they had originally borrowed.

When I was in Thailand.

I went straight to the
Bank of Thailand and asked them:

“were there any informal
credit guidance schemes?”

And they were surprised
that I asked this question.

Because of my study in Japan,

I thought perhaps
there was something similar.

And they told me,

it was a young staff

who perhaps wasn’t aware
of the politics involved,

he said: “yes, yes, we have
this credit planning scheme.”

Banks were ordered
to increase lending.

But they were faced
with less loan demand

from the productive sectors
of the economy,

because these firms had
been given incentives

to borrow from abroad instead.

They therefore had to resort

to increasing their lending
to higher risk borrowers.

Imports began to shrink,

because the central banks had agreed

to peg their currencies
to the US dollar,

the economies became
less competitive,

but their current account balance
was maintained

due to the foreign issued loans,

which count as exports in the
balance of payments statistics.

When speculators began to sell

the Thai baht, the Korean won,
and the Indonesian rupee,

the respective central banks

responded with futile attempts
to maintain the peg

until they had squandered
virtually all

of their foreign exchange reserves.

This gave foreign lenders
ample opportunity

to withdraw their money at
the overvalued exchange rates.

The central banks knew

that if the countries ran out
of foreign exchange reserves,

they would have to call in
the IMF to avoid default.

And once the IMF came in,

the central banks knew

what this Washington-based
institution would demand

–for its demands in such cases
have been the same

for the previous three decades.

The central banks
would be made independent.

On the 16th of July

the Thai finance minister
took a plane to Tokyo

to ask Japan for a bailout.

At the time Japan had US$213
billion in foreign exchange reserves

–more than the total resources
of the IMF.

They were willing to help.

But Washington stopped
Japan’s initiative,

any solution to the
emerging Asian crisis

had to come from Washington
via the IMF.

NEWS: After 2 months of
speculative attacks,

the Thai government floated the baht.

The IMF to the rescue

The IMF to date

has promised almost $120 billion

to the embattled economies of

Thailand, Indonesia and South Korea.

Immediately after arrival
in the crisis stricken countries,

the IMF teams set up offices
inside the central banks,

from where they dictated
what amounted to terms of surrender.

The IMF demanded
a string of policies,

including curbs on central bank
and bank credit creation,

major legal changes

and sharp rises in interest rates.

As interest rates rose,

high-risk borrowers began
to default on their loans.

Burdened with large amounts
of bad debts,

the banking systems of
Thailand, Korea, and Indonesia

were virtually bankrupt.

Even otherwise healthy firms

started to suffer from
the widening credit crunch.

Corporate bankruptcies soared.

Unemployment rose to the
highest levels since the 1930s.

The role of the fund in coming
to the rescue of ailing nations

has been fiercely debated,

some have even accused the IMF

of making Asia’s
economic crisis worse.

Even if they have to
subvert our economy

they will do so just to prove
that they are right,

the IMF has not been very helpful.

The IMF knew well

what the consequences
of its policies would be.

In the Korean case,

they even had detailed
but undisclosed studies prepared

that had calculated

just how many Korean companies
would go bankrupt

if interest rates were to rise
by five percentage points.

The IMF’s first agreement with Korea

demanded a rise of exactly five
percentage points in interest rates.

The IMF policies
are clearly not aimed

at creating economic recoveries
in the Asian countries,

they pursue
quite a different agenda,

and that is to change the economic,
political and social systems

in those countries.

In fact, the IMF deals prevent
the countries concerned,

like Korea, Thailand, to reflate.

Hmmm, interesting, you are saying
it’s making the crises worse

and you’re suggesting that
the IMF has a hidden agenda.

It’s not very hidden this agenda,

because the IMF clearly demands

that the Asian countries concerned
have to change the laws

so that foreign interests can buy
anything from banks to land.

And in fact, the banking systems
can only be recapitalized,

according to the IMF deals,

by using foreign money.

Which is not necessary at all,

because as long as these countries
have central banks,

they could just print money and
recapitalize the banking systems,

you don’t need
foreign money for that.

So the agenda is clearly to crack
open Asia for foreign interests.

The IMF demanded that troubled
banks would not be bailed out,

but instead closed down and sold
off cheaply as distressed assets,

often to large
US investment banks.

NEWS: One positive
coming out of Thailand

is that they will be
auctioning off some major assets

from 56 finance companies,

in your view should eehm,

some of the owners
of the 56 finance companies

be allowed to buy back their assets?

In most cases,

the IMF dictated letters of intent

explicitly stated that the banks

had to be sold to foreign investors.

And let me emphasize
in that respect,

these reform programs are the key,
the absolute key

to restoring financial stability.

NEWS: For the first time ever,

South Korea closed five banks

in a major step towards meeting
its IMF mandate.

The number of commercial banks
has declined,

has been reduced
as a result of closures,

mergers and acquisitions,

and foreign strategic investors
are now in,

which is a remarkable change.

In Asia,
government organized bailouts

to keep ailing
financial institutions alive

were not allowed.

But when a similar crisis

struck back home
in America a year later,

the very same institutions
reacted differently.

The Bailout of
Long Term Capital Management

The Connecticut-based hedge fund

Long-Term Capital Management,

which accepted as clients

only high net worth individual
investors and institutions,

had leveraged its $5 billion
in client capital

by more than 25 times,

borrowing more than $100 billion

from the world’s banks.

When its losses
threatened to undermine

the banks that had lent to it,

with the possibility of
a systemic banking crisis

that would endanger the
US financial system and economy,

the Federal Reserve
organized a cartel like bailout

by leaning on Wall Street
and international banks

to contribute funds

so that it could avoid default.

You’re right, the views from
Washington and New York

certainly seemed quite flexible,

because soon after they told
all the Asian countries

“no bailouts for
financial institutions,”

when Long Term Capital Management,

a hedge fund in New York
almost went bust,

suddenly a bailout was organized,

contradicting what they had
just said to the Asian countries.

But they said that no public
money was used for LTCM

But the meeting was held famously
inside the Federal Reserve.

Why would the United States
make demands on foreign nations

in the name of the free market,

when it has no intention

of enforcing the same rules
within its own borders?

The examples of the
Japanese and Asian crises

illustrate how crises
can be engineered

to facilitate the redistribution
of economic ownership,

and to implement legal,
structural and political change.

Today similar events are at work

in the Eurozone area.

The European Debt Crisis.

Countries within
the Euro currency bloc

have forfeited their right
to a national currency

and handed this power to
the European Central Bank.

NEWS: With me here in the studio
is Richard Werner,

he is a professor at
Southampton University,

What’s your advice to the ECB,

they’re meeting tomorrow,
what would you be telling them?

Well, again, they have to focus on
the quantity of credit creation

more than interest rates.

The ECB has a lot to learn
from its past mistakes,

because I don’t think
it really watched

credit creation carefully enough.

In Spain, Ireland,
we had massive credit expansion

under the watch of the ECB,

interest rates of course
are the same in the Eurozone,

but the quantity of credit cycle
is very different.

There’s one interest rate
for the whole euro area,

but in 2002 the ECB told the
Bundesbank

to reduce its credit creation
by the biggest amount in its history

and told the Irish central bank
to print money

as if there was no tomorrow.

What is going to happen?
Same interest rate,

is it the same growth? No.

Recession in Germany,
boom in Ireland.

From 2004, under the ECB’s watch,

bank credit growth in Ireland,
Greece, Portugal and Spain

increased by over 20% per annum

and property prices sky rocketed.

When bank credit fell,

property prices collapsed,

developers went bankrupt,

and the banking systems

of Ireland, Portugal, Spain and
Greece became insolvent.

The ECB could have
prevented these bubbles,

just as it could have ended the
ensuing banking and economic crises.

But it refused to do so

until major political concessions
had been made,

such as the transfer of fiscal
and budgeting powers

from each sovereign state
to the European Union.

In both Spain and Greece

youth unemployment
has been pushed up to 50%,

forcing many youths
to seek employment abroad.

Greek doctors for whose education
Greek taxpayers have paid

now work in Germany.

The deliberations of the ECB's
decision-making bodies are secret.

The mere attempt
at influencing the ECB

–for instance through
democratic debate and discussion–

is forbidden according to
the Maastricht Treaty.

The ECB is an
international organization

that is above and outside
the laws and jurisdictions

of any individual nation.

Its senior staff
carry diplomatic passports

and the files and documents inside
the European Central Bank

cannot be searched or impounded

by any police force or
public prosecutor.

The ECB is well known
among economists

as one of the world’s most powerful

and least transparent central banks,

yet its former president

Jean-Claude Trichet

dealt with this problem

by merely asserting that
there was no problem:

”the ECB is one of the
most transparent

central banks in the world

and has helped define

the state-of-the-art
of central banking

in this domain,” he claimed.

World Economic Forum
- Davos, Switzerland.

My name is Richard Werner
I am an economist,

my question is for monsieur Trichet,

The question is,

where in the Maastricht treaty
or ECB statutes

does it say that it is the job
of the ECB

to back structural reform or
any other political agenda.

I said very, very clearly, and we
have always said very, very clearly,

that we had no responsibility
in this domain.

We have a voice,
and we say what we think.

And perhaps if we can help
in explaining from our side

to the general people that
they would be better off,

perhaps it would help
Europe embarking

in this implementation of
structural reforms,

which is so important,

and there is a consensus on that,

the diagnosis again, is ehh ehh ehh

a very very very large consensus

on this eh, on this point.

The European Commission,

an unelected group

whose aim is to build a
United States of Europe

with all the trappings
of a unified state,

has an interest in
weakening individual governments

and the influence of the
democratic parliaments of Europe.

It turns out that the evidence
for central-bank independence

that was relied upon
in the Maastricht Treaty

derived from a single study
that was commissioned

by none other than
the European Commission itself,

published in 1992 under the
name “ one market, one money”

the study purported to demonstrate

that central bank independence
led to low inflation.

James Forder, an Oxford academic,

has since demonstrated

that this study was manipulated

to obtain the desired result.

The story we’re being told
by the central banks

does not add up,

and there is evidence that
central banks work differently

from what they would like us
to believe as to how they work.

The world over,

central banks hold significant,
yet little understood powers.

Often independent,
unaccountable and obscure,

central banks operate in the shadows,

yet their actions affect us all.

Central banks in almost
all countries worldwide,

and the IMF has helped
a lot in achieving this,

they have become totally independent

and in practice not accountable

to any democratic institution.

And accountability to parliament

is usually minor and
in practice meaningless.

Whether it is the Bank of Japan,

the Federal Reserve,
the Bank of England

or the European Central Bank,

examples of central bank deception
abound.

In the United States in the 1920s,

banks were encouraged
to create money

and give it to speculators,

the resulting depression

persuaded
the freedom loving Americans

that a decentralized federal system

without strong national controls,

could not work.

In the 1990s
the Japanese were persuaded

that their economic system

which had brought considerable
prosperity and equality,

needed to be changed into

a so-called free market system.

And while Japan's transformation
was not yet complete

the central bankers struck again,

with an IMF led raid
on the Asian Tiger economies.

The present European debt crises

is yet another example
of central bank deception.

To create a public consensus

for the need for structural reform

by purposefully creating a recession

and then needlessly prolonging it,

must constitute an abuse of power.

Do citizens really
want to be manipulated

in such a costly and
dishonest manner?

The End