Chapter 74 4. Financial Nuclear Bomb: Target Tokyo

Japan has accumulated enormous wealth internationally, while the United States has incurred unprecedented debts.The military superiority that President Reagan sought was an illusion, and it came at the cost of losing our position as a lender in the world economy.Despite Japan's attempt to continue to grow quietly in the shadow of the United States, Japan has in fact become a world-class banker. Japan's rise to the world's dominant financial power is a very disturbing event.Soros in 1987 When Britain ceded its role as international moneylender to the United States in World War I, it also lost the British Empire's global supremacy.International bankers certainly still remember this incident. The rapid economic rise of East Asian countries after World War II sounded the alarm to Wall Street bankers in London. Everything that may obstruct and destroy the world government and world unified currency dominated by them Any potential competitors must be strictly guarded against.

Japan, as the first economy to take off in Asia, quickly reached a level that frightened international bankers in terms of the quality of economic growth, the export competitiveness of industrial products, and the speed and scale of wealth accumulation.In the words of Clinton-era U.S. Treasury Secretary Summers, an Asian economic bloc culminated in Japan created fear among most Americans, who believed that Japan posed even more of a threat to the U.S. than the Soviet Union. After the war, Japan started by imitating the design of Western products, then quickly reduced production costs, and finally occupied the European and American markets in turn.In the 1960s, Japan began to use industrial robots in the automobile industry on a large scale, reducing the human error rate to almost zero.The oil crisis in the 1970s made the eight-cylinder gas-guzzling cars produced in the United States quickly defeated by Japan's high-quality and cheap fuel-efficient cars.In the low-tech auto industry, the United States has gradually lost its ability to resist the Japanese car attack.Since the 1980s, Japan's electronics industry has advanced by leaps and bounds. A large number of electronics companies such as Sony, Hitachi, and Toshiba have mastered almost all integrated circuits and computer chips except the central processing unit from imitation to innovation. Manufacturing technology, taking advantage of industrial robots and cheap labor, has decimated the U.S. electronics and computer hardware industries, and Japan has even reached a point where U.S.-made missiles must use Japanese chips.At one time, almost everyone in the United States believed that it was only a matter of time before Toshiba and Hitachi acquired IBM and Intel in the United States, while industrial workers in the United States were worried that Japanese robots would eventually steal their jobs.Although the high interest rate policy implemented by the United States and Britain in the early 1980s saved the confidence of the US dollar and killed many developing countries in Africa and Latin America, the high interest rate also seriously damaged the industrial strength of the United States and caused Japanese products In the 1980s, it aggressively entered the US market.

When the whole country of Japan was immersed in a euphoric climax that Japan could not say, a strangling war against Japanese finance was already being deployed by international bankers. In September 1985, the international bankers finally started to move.The Finance Ministers of the United States, Britain, Japan, Germany and France signed the Plaza Accord at the Plaza Hotel in New York, with the aim of depreciating the U.S. dollar against other major currencies in a controlled manner.Within a few months after the signing of the Plaza Accord, the yen rose from 250 yen to 1 dollar to 149 yen to 1 dollar.

In October 1987, the New York stock market crashed.U.S. Treasury Secretary Baker put pressure on Japanese Prime Minister Nakasone to keep the Bank of Japan cutting interest rates, making the U.S. stock market look a bit more attractive than the Japanese stock market to attract capital flows from the Tokyo market to the United States.Baker threatened that if the Democratic Party came to power, it would deal harshly with Japan on the issue of the U.S.-Japan trade deficit. Then Baker offered a carrot to ensure that the Republican Party would continue to be in power. Bush Sr. would greatly promote the friendship between the U.S. and Japan. The yuan interest rate fell to only two.5%, the Japanese banking system began to flood with liquidity, and a large amount of cheap capital flocked to the stock market and real estate. The annual growth rate of stocks in Tokyo was as high as 40%, and the real estate even exceeded 90%. A huge financial bubble began to take shape.

In such a short period of time, the drastic change in currency exchange has caused Japanese export manufacturers to bleed heavily. In order to make up for the shortfall in exports caused by the appreciation of the yen, companies have borrowed from banks at low interest rates. For stocks, the Japanese bank's overnight lending market quickly became the largest center in the world.By 1988, the top ten largest banks in the world were taken over by Japan.At this time, the Tokyo stock market had risen by 300% within three years, and the real estate had reached an astonishing level. The total value of real estate in an area of ​​Tokyo in US dollars exceeded the total real estate value of the entire United States at that time.Japan's financial system has reached a precarious state.

Originally, if there were no extremely destructive external shocks, Japan might have gradually achieved a soft landing with gentle austerity, but what Japan never expected was that this was an undeclared financial strangulation operation by international bankers.In view of Japan's strong financial strength, if it wins in the traditional conventional financial battlefield, it is not certain to win. To deal a fatal blow to the Japanese financial system, it must use the financial nuclear bomb newly developed by the United States: stock index futures. In 1982, the Chicago Mercantile Exchange first successfully developed the unprecedented financial weapon of stock index futures.It was meant to steal business from the New York Stock Exchange by eliminating the need to pay commissions to New York stock traders when people bought and sold confidence in the New York Stock Index in Chicago.A stock index is nothing more than a list of listed companies, the data obtained through weighted calculations, while stock index futures are a bet on the future stock price trend of the companies on this list. Neither the buyer nor the seller owns, nor intends to own, the stocks themselves.

The stock market is all about confidence, and large-scale shorting of stock index futures will inevitably lead to a stock market crash. This has been effectively verified in the New York stock market crash in October 1987. Japan's economic take-off in the 1980s gave the Japanese a sense of superiority.When Japanese stock prices are so high that no sane Western commentator can comprehend, the Japanese still have plenty of reasons to believe they are unique.An American investment expert who was in Japan at the time said: Here is a belief that the Japanese stock market cannot fall, and it was still the case in 1987, 1988, and even 1989.They feel that there is something very special in their (stock) market, in the whole Japanese nation, that can make Japan go against all the laws that exist everywhere in the world.

Insurance companies are a very important investor in the Tokyo stock market.When international bankers sent a group of investment banks such as Morgan Stanley and Salomon Brothers as the main assault force deep into Japan, they held a lot of cash and looked around for potential targets, and their briefcases were full of stock index put options. A new financial product that was unheard of in Japan at the time.Japanese insurance companies are just a group of people who are quite interested in this. From the Japanese point of view, these Americans must have got water in their heads and used a lot of cash to buy the possibility of a Japanese stock market crash that was impossible to happen. The Japanese insurance industry readily committed.The two parties are betting on the direction of the Nikkei index. If the index falls, the Americans will make money and the Japanese will lose money. If the index rises, the situation will be reversed.

Perhaps even Japan’s Ministry of Finance cannot count how many such financial derivative contracts were traded before the stock market plummeted. This kind of undetected financial virus, in an underground market with almost no supervision, secrets, and similar to over-the-counter transactions, It is spreading vigorously and rapidly in a prosperous illusion. On December 29, 1989, the Japanese stock market reached its historical peak, the Nikkei index reached 38915 points, and a large number of stock index short-selling options finally began to show their power.The Nikkei slumped.On January 12, 1990, the Americans resorted to their trump card. A new financial product, the Nikkei Index Put Warrant, suddenly appeared on the American Exchange. The stock index options that Goldman Sachs bought from the Japanese insurance industry were sold by Resell to the Kingdom of Denmark, which sells it to the purchaser of the warrant and promises to pay the proceeds to the owner of the Nikkei put warrant when the Nikkei index falls.The Kingdom of Denmark is here to let Goldman Sachs borrow its reputation, which has a super-strengthening effect on the Nikkei option sales in the hands of Goldman Sachs.The warrants were immediately sold in the United States, and a large number of American investment banks followed suit. The Japanese stock market could no longer hold back, and the Nikkei put warrants collapsed within less than a month after their listing.

The stock market crash was the first to spill over into Japan's banking and insurance sectors, and eventually manufacturing.Japan's manufacturing sector, which used to be able to raise capital in the stock market at least half the cost of its American rivals, has all become a thing of the past as the stock market slumps. Counting from 1990, the Japanese economy fell into a recession that lasted more than ten years. The Japanese stock market plummeted by 70%, and real estate fell for 14 consecutive years.In the book "Financial Defeat", the author Yoshikawa Mototada believes that in terms of the proportion of wealth loss, the consequences of Japan's financial defeat in 1990 are almost equal to the consequences of the defeat in World War II.William.Engel commented on Japan's financial rout in this way:

No country in the world has more faithfully and actively supported the Reagan-era fiscal deficits and huge spending policies than America's former enemy, Japan.Not even Germany has been so unconditional in meeting Washington's demands.In the eyes of the Japanese, Tokyo's loyalty and generosity in buying U.S. Treasury bonds, real estate, and other assets was ultimately rewarded with the most destructive financial disaster in world history. In the summer of 2006, Paulson, the new US treasury secretary, visited China. When he heard his warm wishes for China's success, people couldn't help feeling chills behind them.I wonder if his predecessor Baker said the same thing when he held the hand of Japanese Prime Minister Nakasone.