Protecting the Banking Systems Alone Will Lead to a Great Depression

This Q and A session was given on Oct 11, 2012 at General Headquarters.

The Question:

My question is about fiscal policy. The IMF is beginning to recognize the necessity of expansionary fiscal policy. How should we deal with the fiscal policy in this current world economic situation?

 

Master Okawa’s Answer:

1. Protecting the Banking System Alone Does Not Help to Protect the Economy

It’s related to my lecture about the IMF and the EU fiscal policy today. When I look at them, I feel like they are just protecting the banking system of the EU or other countries. However, the banking system is not the economy itself. To protect the banking system does not equate to the protection of a good economy, or to prosperity, or to the growth of economy. They are just protecting the banking system.

Japan has also been protecting the banking system since 1990. During the economic growth debacle, at the end of the bubble years, they did it. The banks shrunk their work force, including the amount of money they spread, and the speed at which they did it in order to control the amount. There were the loans, of course. One kind was good, and another one was not so good but not too bad either, and yet another one was the bad type.

The bad ones usually led to a corruption of the enterprise, I mean to bankruptcy. Those loans went to bankruptcy. At that time, problems occurred, and they damaged the banks themselves. The bank as a company hesitated before making bad loans. They wanted to clear the balance sheet, and they wanted to meet the criteria for the global standard. From my experience over the past twenty years, the global standard itself has not been functioned well.

The standard damaged Japanese banking system, and it also bankrupted many enterprises in Japan. In the next stage, a lot of bankruptcies in the EU will occur, and of course they will also happen in Africa, Asia, and all around the Americas, in the north, south, and middle parts.

 

2. If the Policy Makers Do Not Take Expansionary Fiscal Policy, a Great Depression Will Happen Similar to the One in 1929

We must consider that world’s population is expanding. We experienced an increase from one to seven billion people in the last two hundred years. It means we need greater economic powers, because the population is becoming larger and larger. In the near future, we should expect to see over ten billion people in the world.

Those people will not be affluent people. They will suffer. They will not experience the lifestyle of rich. More than half part of them will be stuck in a stage of primitive poverty. More than one billion people will be extremely poor. They will not have enough food or clean water, and only the fittest will survive in the near future.

In any event, the banking system must change their opinions. Now they should not only think about the clearance of the bad loan problem, showing a better balance sheet balance to have it appear well-organized from the viewpoint from other bureaucratic systems, such as the IMF.

Companies need money, and people will use it. People will want to move the economy for themselves. At that time, if not enough money is in the world, the companies will be destined for ruin.

Only the banks will be safe, and a lot of companies will disappear. Only the banks will survive in a sea of sand like the Arabian Desert. It will be not a very good situation.

So the people, who are working in the banks, have mission. They should recognize their mission. They must supply money, a lot of money, to save other companies especially in the next three to four years. If they strongly control the fiscal policy, a worldwide depression will occur like the one in 1929. It’s coming. I can hear the sounds at the foot of a great fall. It’s coming.

 

3. Focus More on Lending Money Than to Make a Good Balance Sheet

Don’t think small, and don’t think about just shrinking or just restructuring your company to make the balance sheet. Don’t only want to show off a good Balance Sheet amount.

The banking system exists to help companies in the world to promote their economic activities. They should remember this starting point. I want to say so. However, the bureaucracy is composed of the people, who are working at worldwide banks, so they are tend to make mistakes.

So Japan should now start a new economic policy. Japan shouldn’t stop supplying money and helping weaker companies to stand up and restart their businesses.

During this time we need to have a future vision for Japan and the rest of the world. It’s essential.

The banking system lacks a vision for the future. That’s the problem. I dare say, the policy of cutting monetary loans is not good. I bet that it will create more than ten to twenty years of depression.

So the EU should change their way of thinking. The sizes of the Greek and Italian economies are very small, so their problems should not be widened to affect the worldwide economy.

Large economic countries should strengthen the worldwide economy. They should consult with each other, and should make up their minds to widen the economy of the world in which the population is expected to increase from seven to ten billion people.

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Protecting the Banking Systems Alone Will Lead to a Great Depression
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