JAPAN | Video History

History of Japan – definitely entertaining and seems to cover the ground I am familiar with. Early emperors and shogunates, samurai code, European and American (Commodore Perry) visits, Korea-Chinese conflicts, two world wars, rapid economic growth.

Video starts slowly, ends fast, a good formula. The history has been viewed 5 million times, but not so much yet in Japan.

https://globalvoices.org/2016/02/11/hilarious-animated-history-of-japan-gets-rave-reviews-including-from-japanese/

HIROSHIMA | 70 Years On

The mushroom cloud over Hiroshima.

Today in 1945, 70 years ago, the United States dropped an atomic bomb on the Japanese city of Hiroshima.

The war in Europe had ended earlier on May 8 with the surrender of Nazi Germany.

On July 26 the United States, United Kingdom and China issued the Potsdam Declaration, calling on Japan to surrender, warning of "utter destruction" if it did not. Japan refused.

In August, the Manhattan Project detonated an atomic device in the New Mexico desert.

Today at 8:16 local time, a B-29 bomber Enola Gay, called "Little Boy", released a uranium gun-type atomic bomb with the explosive power of 12,000-15,000 tons of TNT. Hiroshima had a military base but the majority of those killed were civilians.

The impact on Hiroshima is measured as:

• 62,000 buildings destroyed
• five square miles flattened
• 80,000 people killed immediately
• approximately half the eventual deaths occurred on the first day
• 35,000 more people died during the next week, of injuries or radiation
• 60,000 more died during the next year from the effects including malnutrition
• 90 percent of the city's doctors were killed by the bomb

Hiroshima after the bomb.

Japan did not surrender immediately after Hiroshima. Three days later, a second bomb, a plutonium implosion-type bomb nicknamed "Fat Man", was dropped on Nagasaki.

Six days later, on August 15, Japan surrendered and on September 2 it signed the document, ending World War II.

A year later, The New Yorker devoted an entire issue to an article by John Hersey, "Hiroshima", which is available online. It opens as follows:

At exactly fifteen minutes past eight in the morning, on August 6th, 1945, Japanese time, at the moment when the atomic bomb flashed above Hiroshima, Miss Toshiko Sasaki, a clerk in the personnel department at the East Asia Tin Works, had just sat down at her place in the plant office and was turning her head to speak to the girl at the next desk.

Terrible things happen in war. Hiroshima and Nagasaki are two of the most terrible wartime events in history. The necessity of one or both bombings is still the subject of argument. The huge ethical issues related to the bombings continue to be debated and the challenge of controlling nuclear weapons is still with us.

Alice and I went with our children to Japan in 1981 and 1986 and we visited the Memorials in Hiroshima and Nagasaki.

LABOR | Developments in China

Mike Lee, Lead Trainer for China, and
Eliza Wright, Development Manager, SAI.

In June 2010, a nonviolent eight-day strike of 1,700 workers at the Honda factory in Zhongshan attracted international attention. Within three weeks, it was the third Honda auto parts factory in Guangdong province to suffer a work stoppage, along with plants in Shenzhen and Foshan.

In addition to the issue of inadequate wages, the workers at the Honda plants were pressing to have their own union, because they felt that the All-China Federation of Trade Unions (ACFTU) was not representing them adequately.

On August 4, I was privileged to talk about these questions with Mike Lee, Lead Trainer for Social Accountability International in China, who was in the United States for the same SAI planning sessions that Rishi Singh participated in. (See my report on workplace developments in India immediately before this one; also note my disclosure that I have been married for 41 years to the president of SAI.)

Lee has his M.Sc. degree in Chemical Engineering from Northeast China Institute of Electric Power Engineering and a B.Sc. degree in Electrical Engineering from Wuhan University. He has conducted more than 50 SA8000 audits. He is based in Shenzhen, near the site of one of the three Honda plants that had work stoppages in 2010.

Q&A

Q1. Mike, I thought the ACFTU was supposed to be the only union in China. It’s the one that Wal-Mart’s workers belong to. Why do you think the Chinese government has allowed the Honda union – and similar ad hoc worker groups in other factories - to continue?

LEE: It was a puzzle at first. The theory now is that the government is using the existence of the bottom-up worker representation to put pressure on the national union to be more responsive to worker concerns. The government knows that Honda and other big brands can establish factories anywhere they want. Another reason is that although Wal-Mart had established many ACFTU branch unions inside their companies, actually it does not work as expected. The union seems to be not functioning where there was a mass layoff in Wal-Mart last year.

Q2. A striking Honda worker who was afraid to identify himself is reported as saying: “The ACFTU is not representing our views; we want our own union that will represent us.” What might the do-it-yourself unions have that the official union does not?

LEE: Actually workers in the Honda strike asked their local government to re-organize the ACFTU local union in Honda’s factory. After a series of negotiations, finally, the members of the Honda union were elected by workers directly, but the previous union leader is still there. The new re-organized union in Honda’s factory cannot be viewed as a completely independent labor union but worker representation was enforced.  Perhaps  the Chinese government is trying to find out what works. It wants to make the national union better. Probably the most important task is to improve communication between plant managers and workers and to increase the representation of workers in ACFTU local unions.

Q3. How can a union improve representation of workers?

LEE: SAI has been thinking about this for a long time and has ideas on how to create systematic channels of effective communication between the factory manager and the workforce, and how to encourage workers and unions to become more involved.

Q4. Can you give me an example?

LEE: An example is to establish a mechanism inside factories to handle disputes. SAI’s approach in its Social Fingerprint^® Program is to establish “Internal Social Performance Teams”.

Q5. Doesn’t every factory have something like this?

LEE: Apparently not. The Chinese government may be seeking to ensure that the ACFTU is bringing workers’ representatives and  management to the table together when necessary.

Q6. It sounds like President Kennedy’s idea of a three-way negotiation, with the government bringing management and labor together. Of course, he was interested in the national unions and the major steel companies, whereas these issues are strictly local initiatives. What is the outlook for pop-up unions in China?

LEE: Yes, this is quite similar to President Kennedy’s idea of a three-way negotiation. No one knows the outlook of pop-up unions in China, but the government’s letting them continue informally at Honda and elsewhere is a good sign. Think of them as pilot projects under observation, and perhaps showing the way for the AFCTU, encouraging them to have a closer relationship with workers in every factory. The latest interesting news in China is that in May 2012, a pilot project of electing union leaders by workers directly at factory level in Shenzhen was successfully implemented. And the ACFTU branch in Shenzhen has announced they will involve more factories this year. This program of pilot elections may be considered a response by the local government and the ACFTU branches to the Honda strikes. This is a first step toward greater independence of the labor unions.

Q7. How does the Honda union operate?

LEE: Once a year, in February or March, or both, the union engages in collective bargaining with management for a wage increment and some assurances on other matters, such as  that excessive overtime will be reduced.

Q8. Is the leadership among workers at the Honda plants, and the governments allowing them to continue, having any effect nationally?

LEE: I think so, if workers’ requests are  mainly focused on increasing their wage level, reducing excessive overtime working hours, and health and safety issues. It is seen as a signal that having workers’ representation in the factories is considered healthy by the government. It is good for the worker committees and the workers because it creates confidence that management will be responsive. 

Q9. There were strikes in other cities outside Guangdong and the targets are often Japanese-owned and Taiwanese-owned factories. And in India the factory where there was violence was owned by Suzuki, a Japanese firm. Is there any significance to the fact that these factories are foreign-owned?

LEE: People are perhaps more willing to believe that there is a lack of communication when the factory is foreign-owned. Also, perhaps the British and American-owned brands became aware of the problems earlier, because of consumer sentiment. Some U.S. brands have been early users of SAI’s Social Fingerprint^® Program and the SA8000 certification program.

Enough "Blood on the Streets"?

How low can the market go? In 1815, Nathan Rothschild said that the time to buy stocks was "when there is blood on the streets". Are we there yet?

The Great Depression lasted a decade but the Dow industrial index fell 89 percent from its high of 381 on September 3, 1929 to its low of 41 on July 8, 1932. The economy remained sour for the rest of the decade but the stock market picked up.

For the enthralling story of what happened during those years, I recommend chapters 17-20 of Liaquat Ahamed’s timely Lords of Finance: The Bankers Who Broke the World. I had the pleasure of listening to Liaquat talk at a recent evening event in New York City. He modestly disclaimed knowledge of the financial disasters that were going to happen and simply said that the Time magazine cover showing Robert Rubin, Larry Summers and Alan Greenspan with the caption “Committee to Save the World” suggested to him the idea for his book. The title reminded him of the name given to the top bankers working on global financial problems after World War I, “The Most Exclusive Club in the World.” The book studies the origins of the Great Depression that is clearly told by taking the different perspectives of the four leading actors of the period, the Lords of Finance -- Montagu Norman in the UK, Benjamin Strong at the New York Fed, Hjalmar Schacht in Germany and Emile Moreau in France.

Yesterday’s stock-market drop brings us to a cumulative decline that can only be compared with the 1930s. Fearful of today’s jobs report, investors drove the major U.S. stock averages down 4-7 percent. Jack McHugh has tallied from StockCharts.com how far down this took the markets from their peaks.

I think we can all agree that what ails our economy and markets is worse than anything since that awful time [the Great Depression], and the worst punishment Mr. Market has meted out since the 1930’s was a drop in the S&P 500 of just less than 50% (1974 & 2002).

The cumulative drop from their peaks (October 11, 2007 so far is:
Dow Jones Industrial Average — All Time High: 14,198. March 5 - Down 53.6% to 6594.
Standard & Poor’s 500 — All Time High: 1576. March 5 - Down 56.7% to 683.
Russell 2000 — All Time High: 856.50. March 5 - Down 59.2% to 349.45.
KBW Bank Index (BKX) — All Time High: 121.16. March 5 - Down 84.3% to 18.97.

Barry Ritholtz’s blog provides this list of Blue Clip penny and under-$10 stocks:
AIG (39 cents – less than it costs to mail a letter). Citigroup (98 cents). E*Trade (66 cents). Fannie Mae (39 cents). Freddie Mac (39 cents). Unisys (37 cents). Ford ($1.83). GM ($1.83). Las Vegas Sands ($1.97). MGM ($1.99). CIT ($2). Kodak ($2.50). Bank of America ($3.15). New York Times ($4.00). News Corp ($6.15). Xerox ($4.36). International Paper ($4.22). Alcoa ($5.55). GE ($6.75). Dow Chemical ($6.56). Wells Fargo ($7.95). Dell ($8.50).

In terms of timing, the Dow peaked before FDR came to office – before he was even elected. So the fears are lingering longer than they did then.

In what ways are markets and economies possibly worse off than in 1932?
- Expectations are higher because billions of people in the developing countries who were anticipating joining the global economy are seeing their hopes dashed. The 1930s effects were severe but were concentrated on the industrialized countries. The potential for instability in some countries is great and the proliferation of weapons makes this scarier than it would have been in the 1930s.

- The size of the credit overhang is much larger. The gold standard, for all of its faults in extending the distress in the 1929-33 period, kept a lid on the growth of credit. Today’s system has no natural limit to credit growth. Credit-market exposures today exceed GDP – in the United States by 50 percent, estimates Liaquat, in the UK by four times, and in Iceland by eight times GDP.

- In the world’s second-largest economy, Japan, the stock market has fallen 81 percent from its peak at the end of 1989. This 20-year decline raises questions about how quickly the world's current mess can be cleaned up.

DEPRESSION | Was the Fed the Cause? Or Property Speculation?

Friedman and Schwartz,
Monetary History of
 the U.S., 1963.

February 23, 2009–In the 1950s, the cause of the Great Depression was attributed simply to 1920s over-buying of real estate, with Florida as the poster state.

Subsequently, monetarist economists have put the blame on blunders by the Federal Reserve System, which was adrift after the death in 1928 of its able New York Bank President, Benjamin Strong.

Milton Friedman and Anna Schwartz demonstrated that the Fed was selling government securities instead of the more logical counter-deflationary action of buying them.

The Fed was therefore said to have taken liquidity out of the financial system and to have kept interest rates too high for recovery in the 1930s.

Making the Fed the culprit has contributed to a complacent feeling that the Fed knows so much now that the Depression couldn't happen again. The problems of the Japanese financial system since 1990 have been brushed off (e.g., by former Fed Governor Larry Meyer) as indicators that the Japanese response to a downturn was just too slow and too timid.

Polly Cleveland has recently reasserted the older version of the story, namely that the Depression was primarily a reaction to the 1920's real estate bubble. It began with the production of cars in 1899, which grew exponentially (with just a two-year interruption for World War I) until a peak of 4 million cars in 1929.

The auto suddenly opened up vast suburban and rural areas to housing. Developers—legitimate and bogus—leapt at the opportunity. Banks jumped in too, creating so-called "shoestring mortgages", effectively allowing property purchases on margin. Within a few years, tens of thousands of acres around major cities had been subdivided and sold. In rural areas, developers bought up farms, dug a pond, built a "clubhouse" and sold cheap "vacation" lots. As reported in Homer Hoyt's classic One Hundred Years of Land Values in Chicago, from 1918 to 1926, Chicago’s population increased 35 percent and land values rose 150 percent, or about 12 percent a year.

Land values tapered off in 1926, then fell. After 1929, home construction and car production collapsed. In Chicago, by 1933 land values had fallen some 70 percent overall; peripheral areas fell even more. U.S. auto production did not regain the 4 million level until 1949. Housing production did not pass the 1926 peak until 1950. Cleveland continues:

Around Detroit, more than 95 percent of recorded lots were vacant as of 1938. Nationally, the number of vacant lots rose to 20-30 million, compared with about 30 million occupied housing units. According to economic historian Alex Field, the barren subdivisions ringing the cities hindered the recovery of construction: Missing titles of defaulted owners and poor physical layout created de facto brownfields.

The real estate bubble helped set off and then worsen the Depression. Collapsing land values left people suddenly much poorer, so they cut spending. They also defaulted on mortgages, sticking the banks with "toxic" assets: liens on near-worthless property. The struggling banks in turn cut off lending even to good customers. Bank runs—panicky depositors withdrawing cash—further crippled the banking system.

Cleveland compares the innovation of the automobile with the innovation of collateralized debt obligations. Both started off innocently enough (securitization of housing debt was a good idea when properly monitored), but ended up setting off destructive real estate bubbles.

What we have found out is that the downside of the business cycle is not necessarily more under control than it was in the 1930s.

U.S. DEBT | Foreign Holdings

Nov. 20, 2007–Watch what they do, not what they say. Based on the latest available data issued November 16, amid the posturing at the recent OPEC meetings, oil exporters have been adding to their holdings of U.S. securities over the past year, from $114 billion to $126 billion.

Japan has pared $36 billion, but is by far the largest foreign holder of U.S. dollars ($582 billion). The People's Republic of China has added $7 billion (to $397 billion). The biggest friends of the United States have been the UK, which added $204 billion (to $266 billion), and Brazil, which added $64 billion (to $109 billion). These two buyers more than account for the growth in foreign holdings of U.S. securities of $222 billion (to $2,247 billion). The top five holders of U.S. securities (counting oil exporters as one holder) account for 66 percent of all foreign holdings.

The year-over-year increase in holdings uses the dollar measuring stick. It looks differently to someone translating the dollars to yen or renminbi or the euro. The euro rose from $1.27 in September 2006 to $1.39 in September 2007, so from the perspective of someone buying most of their goods from Europe, the value of the U.S. securities fell 9 percent, canceling out what Uncle Sam is paying by way of interest.

Two caveats: (1) The numbers for November and December may have a different look–we will know in January and February 2008. (2) The U.S. Treasury International Capital reports are "estimated" based "on annual surveys ... and monthly data".