Bursting of an asset bubble can have grave consequences for the economy and the society at large – so grave, it’s worth paying attention at this point. I’ll elaborate.
In only six trading sessions from the 20th February peak, the S&P500 shed more than 12%, one of the fastest declines on record for the index (only the 1987 black Monday was worse). Only a week before this event I posted the article, “Bubbles Always Burst…”on SeekingAlpha, warning about the risk of this happening.
Whether last week marks the beginning of the bubble’s bursting remains to be seen, but this is only a matter of time. Bubbles always burst, no exceptions. But what’s important to understand is this: bubbles are meant to be burst! For guidance, let’s look again at the bursting of Japan’s own everything bubble of the 1980s.
Why do we have bubbles?
Asset bubbles facilitate a massive transfer of wealth from those who create it to those who control the monetary apparatus. The Japanese example is a good case to study. In his masterful documentary, “Princes of the Yen” Dr. Richard Werner traces the conflict between the Japanese Ministry of Finance and Bank of Japan for the control of the nation’s economy. The BOJ wanted to enact a wholesale overhaul of Japan’s economic and financial system. But the vested interests entrenched in the “old” system resisted the changes. To overcome this resistance, a major crisis was needed: “It is the crisis that convinces the citizens and the interest groups of the need to change…” This is why the asset bubble was created…
In my November 2019 article, The one force moving stock prices and what it tells us about the future I provided empirical evidence that asset bubbles are created by credit expansion driven by the central banks. To create one in Japan, the BOJ significantly increased its “window guidance” loan quotas. Average yearly growth quote was close to 15% per annum in the 1980s. Having interviewed many bankers, Dr. Werner concluded that, “The BOJ forced the banks to increase lending so much.” The bankers knew that in order to expand lending they had to increase non-productive loans.
Banks increased lending even when there was no demand. Normally, banks choose their clients from among a large number of loan applicants, turning down a significant percentage who are deemed poor credit risks. But from 1987 onwards, it was the bankers who were aggressively pursuing potential customers. The bubble resulted from the rapid creation of new money by the banking system.
At my signal… unleash hell!
By late 1989 the BOJ was ready to pull the rug from under the Japanese economy. In a press conference after the meeting of 26 BOJ governors, Yasushi Mieno said that Quantitative Easing policies were bad and that real-estate lending should be restricted. The media cast Mieno as a hero for challenging BOJ’s bubble-inflating monetary policy, overlooking the fact that as BOJ’s Deputy Governor from 1984 to 1989, Mieno was in fact instrumental in implementing that same policy in the first place. On 17th December 1989 Mieno was appointed to the top spot as the BOJ Governor and only one week after his appointment the BOJ drastically increased interest rates, triggering the spectacular bursting of Japan’s everything bubble.
The human toll
There is more to the bursting of a bubble than just investors’ stock portfolios taking a hit. A heavy human toll was forced on ordinary people and businesses. In the immediate aftermath of the stock market crash, more than 5 million Japanese lost their jobs and could not find employment elsewhere. Suicide became the leading cause of death for men aged between 20 and 44. From 1990 to 2003, more than 212,000 Japanese firms went bankrupt and land prices in major cities declined by as much as 84%.
Why did the BOJ do this?
Let’s briefly examine what the central bankers’ bag of tricks achieves. As Dr. Werner explains, the BOJ deliberately kept Japan in the crisis in order to force “structural readjustments” on the Japanese economy. Through the process, the media in Japan cast the Ministry of Finance as the culprit for the economic crisis, leading to raids on FinMin offices, arrests and even suicides. Meanwhile, the BOJ’s influence and power grew. Yasushi Mieno campaigned to free the BOJ from FinMin’s control and make the central bank fully independent. By 1998 the BOJ finally won its independence and it was now free to press its structural reforms and gain increasing control over Japanese economy with no checks or interference from Japan’s legislators or elected officials. It set itself above the law as the ultimate arbiter of Japan’s economic life.
Fast forward to the present day and we can better appreciate the ultimate fruits of BOJ’s labours: at the end of March 2019, the BOJ was among the top 10 shareholders of nearly half of all companies listed on the Tokyo Stock Exchange, representing 4.7% of the total capitalization of the first section of Tokyo Stock Exchange.  It also held 75% of all exchange-traded funds and 43% of all Japanese Government Bonds representing over 100% of the country’s GDP.
Thus, the BOJ has appropriated and is continuing to appropriate large segments of Japanese economy with money it draws from its own printing presses, all behind the smokescreen of crises, stabilizations, rescues, stimuli, quantitative easings, etc. But when we strip all the diversions thrown our way by the expert class, the process ultimately amounts to nothing but plunder at colossal scale.
Did Yasushi Mieno get prosecuted for this heist? To the contrary, in 1994 he was rewarded for his good work with a perch at the banking cartel’s mother-ship: he became member of the Board of Directors at the Bank of International Settlements and lived happily ever after (until he died, that is, in 2012).
People versus the bankers
So there you have it. Our central bankers, loudly defending the imperative of their ‘independence’ have built a system that operates as a massive conveyor belt transferring wealth from those who created it to those who conjure money out of thin air. The system eats wealth and shits misery. Over the last three or four centuries it has managed to turn large swathes of the earth from paradise into a toxic dump. It has turned humanity from what many of us glean as something beautiful and sacred into something that increasingly resembles the wretched things we raise in factory farms. William Burroughs wrote this: “What does the money machine eat? It eats youth, spontaneity, life, beauty, and above all, it eats creativity. It eats quality and shits quantity.” In his Hymn to the Bankers, Erich Kastner wrote: “They gorge on God and the world. They do not sow. They just reap. They are the sorcerers in the flesh [who] make gold over the phone…”
Meanwhile, by virtue of controlling the media space and by funding hundreds of think-tanks, these same vested interests are working overtime to convince us that our enemies are the Russians, Iranians, the Chinese, the Jews, the Muslims, the liberals… whatever can keep us distracted, disoriented and divided as they pick our pockets. Hey, look over there, the Russians are coming to getcha!
Whether in Japan, in the USA, in Europe or elsewhere, the enemy of humanity are those who own and control the money machine. Not the small bankers running local community savings and loans type institutions but the international banking cartel headquartered in the City of London which controls and operates the central banking franchise and the ‘systemically important banks’ as listed by the Bank of International Settlements.
Well over 100 years ago, Lord Acton understood that, “The issue which has swept down the centuries and which will have to be fought sooner or later is the people versus the banks.” Indeed. It will have to be fought. They will not relinquish control voluntarily.
 Tomita, Mio: “Bank of Japan to be top shareholder of Japan stocks” – Nikkei Asia Review, 17 April 2019
4 thoughts on “Financial bubbles and their human toll”
This is an incredible review of the Japanese 30 year trajectory. It appears that both ECB and US Fed have been using same playbook. But who wrote those rules, or did they just “evolve” through lack of questioning? Do ”whatever it takes” , said the ECB, to maintain those rules, regardless of their effects on the real economy and people’s lives. During the Greek crisis of 2015, Greek fin minister tried to confront the EU banks, and was tossed out for his efforts.
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Yes, it seems they’ve gradually assumed control of all levers of power, and yes they play by the same playbook (witness ECB’s CSPP (Corporate Sector Purchasing Program) and the Fed’s ownership of large chunks of US economy.
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Thought-provoking stuff Sacha
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Thank you Carl!
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