Quis Custodiet

Opinions - June 17th, 2005

Time to look to the money, says Henry Scott Stokes

We have a group at that marvelous institution, the For­eign Correspondents’ Club, known as the Professional Activities Committee or РАС for short. If you want to know what is going on in the hearts and minds of foreign correspondents based in this nation, you almost have to belong to the РАС. Reading the sug­gestions made there for speakers to come to the club, you see what preoccupies people. And then glancing at the reports on attendance you know what topics draw audiences in what numbers.

In April, not unnaturally, it was China, given the high jinks in that department in the early summer. The Chinese were lambasting the Japanese in their inimitable fashion — protesting events of yesteryear — and the Japanese were responding, if that is the verb, with a deep cringe. How come people here don’t know their own fairly recent history? They just don’t want to. This has been the case for as long as I can remember.

In June and July, what will dominate our coun­sels down in the Yurakucho Denki Building? My guess — and it’s no more — is that we may all of a sudden find ourselves homing in on world economic news. And how so? Well, not to put too fine a point on it, there are enormous thunderclouds in the air. We appear to be heading for one of those August crises in international finance or to have a fairly good chance of doing so.

What do I refer to precisely? I don’t know about you but I believe in the Wise Man theory of economics. According to this theory there are among us a few gu­rus who simply know what is what. The most promi­nent of these individuals according to the Scott Stokes private score-card of the last ten years has been a man called Robert E. Rubin. If you’ve forgotten who he is, by any chance, refresh your memory. Mr. Rubin, now a director at Citigroup, was Secretary of the Treasury in Bill Clinton’s rocky second term, and under his guidance the U.S. economy fared well. Mr. Rubin was greatly trusted by the financial community round the world, notably in the U.S. Japan and Europe, and I would say that he still is. So when he utters a warn­ing that, in effect, the world could go phut at any moment, you’ve got to sit up.

Not to put too fine a point on it,
there are enormous thun­derclouds
in the air.

Here are his words, as found in The New York Times on Friday, May 13: “We can continue to close our eyes [to the fiscal imbalances of the U.S.] and hope for the best. There’s no way to predict whether that will work for another few months or for many more years. But the odds are extremely low that our fiscal imbalances will solve themselves, and we place ourselves at great peril by not facing these realities. Conversely, if we do address these challenges… our prospects over time should be very favorable”.

How do you like that? Translated into plain English the elegant Mr. Rubin is saying that any month now, there could be a crisis of confidence. Again, I don’t know about you, but I like a situation to be reduced to a couple of numbers, when the going gets rough. That way my feeble brain can get a grip on the grim realities out there.

Again the ex-Secretary is helpful: “[U.S.] tax rev­enues are approximately 16.5 percent of gross domes­tic product, the lowest level since 1960, and spending is roughly 20 percent.” In other words this old house, the US, is totally dependent on the maestros of central banking finance over here in Japan — and in China — to keep its leaking ship of state afloat. Ouch!

Here is what a British friend, who authors a con­fidential weekly report on world finance, wrote on Friday May 13: “Cracks are beginning to appear in the financial superstructures… With the [U.S.] Federal Reserve continuing to tighten and risk aversion rising, [we] remain tactically cautious on Wall Street-correlat­ed world stock markets. The more the Fed tightens the more likely there are to be financial accidents.”

I am passing the name of this pal — he normally stays out of the limelight and may need some persuad­ing — to my colleagues, with a suggestion that we tap him as a speaker.

Henryss@gol.com