About Stephanie Flanders
I've been the BBC's economics editor since April 2008. Before that, I had been Newsnight's economics editor since October 2002.
I've been a policy wonk as well as a journalist. From 1997 to 2001, I worked as a speechwriter and advisor to the US Treasury Secretary, Larry Summers, where I was involved in the management of the emerging market crises of the late '90s. (You could say they were a rehearsal for the crises of 2007-8.)
I've also worked as a reporter for the New York Times, and as principal editor of the UN's 2002 Human Development Report.
Before heading off to the US, I wrote leaders and economics columns for the FT, and worked as an economist at the Institute for Fiscal Studies and London Business School.
My father was Michael Flanders, of the 1950s and '60s musical comedy duo, Flanders and Swann; you can listen below to a programme I made about him for Radio 4's The Archive Hour in June 2007. But I don't plan to end any of my reports with a rendition of I'm A Gnu.
I live with my partner in west London, with our son Stanley and our daughter Claudia. She is a child of the credit crunch.
In order to see this content you need to have both Javascript enabled and Flash installed. Visit BBC Webwise for full instructions. If you're reading via RSS, you'll need to visit the blog to access this content.
I'm 
© MMIX~RS~q~RS~~RS~z~RS~16~RS~)
Comments
Sign in or register to comment.
This comment was removed because the moderators found it broke the House Rules.
Ah .. Larry Summers, that might explain the minor knowledge gap.
Of course nobody saw this coming .. did they ;)
http://uk.youtube.com/watch?v=2I0QN-FYkpw
I dare you to interview Peter Schiff on the BBC :)
Complain about this comment
Welcome to the Blogosphere, Stephanie. You've certainly picked an interesting time to start this blog!
If you've managed to inherit even a tenth of your father's talent, I'm sure your blog will be more worth reading than most.
Complain about this comment
hey Stephanie, welcome back..
will be checking your blog and views
cheers
Complain about this comment
Someone might want to ask "what sectors will eventually grow to get us out of the recession"
Not the City that's for sure.
We should be investing in such sectors
Complain about this comment
Flanders and Swann? Oh, that's magic. I used to watch them on TV at the end of the 50s/early 60s and I was too young to appreciate them. In more recent years however I've come to appreciate how brilliant they were. You must be really proud of your father.
I suppose you must get corny jokes about "This is the Gnus" all the time. So I won't crack one here.
Complain about this comment
I remember someone who did A level economics at a school in Borneo in 1970 telling me at that time, "this stuff is fine for explaining the past but it cant predict anything because its not a science - at least not in the Boyles Law sense". George Soros has more or less said the same. Why does the BBC them still continue to give credibility to this pseudoscience. e.g in every broadcast there is the inevitable interview with some worthy in the banking and finance sector where they are asked, in all seriousness, questions like "how long will this last", " have we bottomed out yet". As if they have any idea! They just get paid to say something dressed up as science - with the usual caveats and conditions. Might as well ask Mystig Meg. Why does everyone believe (or pretend to believe) this stuff or take it so seriously. Human behaviour is too complex to be modeled esp when there are 6billion of them.
There is of course much vested interest in keeping this fairytale going. Politicians realised long ago that it looks good if you can talk as though you can direct the economy using technical language. And academicists and publishers also have a lot to lose if the science in economics was largely debunked. But until everyone in the newsmedia, in politics, finance and business schools admit that "economic spin" is what has been dished out for the last 20 year, the public will continue to be fooled. But I guess there is too much at stake for such honesty.
Complain about this comment
welcome back. you picked a fine time to go on maternity leave, didn't you...greatest economics stories for a generation and you were mopping up baby sick. not that that is not a very worthy thing to do of course.
I've often thought Robert Peston was doing the work of two in your absence...but then I think he's enjoyed the limelight. He's a celebrity now.
Complain about this comment
Good to hear more from you Stephanie. Your clear, factual reports are sorely needed.
In the present crisis there seems to be a big gap between what the media reports and actual economic facts.
In particular the B of E bank lending figures show that UK bank lending to non financial businesses has been growing at a double digit percentage rate.
But the media keep reporting that the banks (who have government support) are not lending, repeating what the politicians and business representatives are saying.
The media also keep saying that the banks have not passed on the interest rate cuts without investigating what the change in interest rates are that banks have to pay for their funds (it is not the B of E minimum lending rate).
Similarly, the media keep reporting that the banks have been "given" money by the taxpayer whereas it has either been lent to them at a commercial rate; invested in them as preferred shares at a 12% interest coupon; or invested in ordinary shares at a price which is only about a tenth of what they had been a year previously.
So the "bail-out" money has not been given away and the taxpayer may well get more back in total than has been lent/invested.
It seems to me that in any country where there the banks are private the central bank has to act as lender of last resort because banks necessarily lend longer term than they borrow. Why has the media not reported upon how well the B of E has performed this role compared with the US and European central banks?
Complain about this comment
Hi Stephanie, welcome back.
We have missed your intelligent analysis and analytical approach. There has been a bit to much hyperbole whilst you have been away.
Pity about the timing on the baby front. You must have been chomping at the bit to get back.
Complain about this comment
Welcome back Stephanie. It will be great to have someone reporting on the economic situation factually, clearly and not over-dramatically. Evan Davis was equally good. So as long as you learnt from him, you will continue the BBC's good tradition.
It will definitely make a very pleasant change from the histrionics of Peston - who speaks as though he knows it all, and knew it all before anyone else did.
Evan is doing an excellent series on BBC2 'The City'. This is clear, well explained and does not attempt to suggest he saw it all coming (as Peston did and still does).
Keep with the Evan style and I will start to listen to the economics news on the BBC again.
Complain about this comment
I wonder why everyone especially remembers 'I'm a Gnu'. I was always particularly fond of 'The Missing Horn' (after Mozart). Anyway, welcome back.
Complain about this comment
A warm welcome back Stephanie. Lucid and fluent., it's a pleasure to listen to you, even when bearing bad news.
Complain about this comment
Twas always the Hippopotamus Song for me.
Good luck - I think you will need it! Oh to be party to your office sweep on when it will all end.
Complain about this comment
Warm welcome to the blog and the return back to the BBC....Stephanie.....
~Dennis Junior~
Complain about this comment
Stephanie,
Please change the title of your blog.
Stephanomics is a real turn off.
Complain about this comment
Hi Stephanie
Wellcome back, we need economic thought to be represented in the media and your replacement Hugh Pym has offered little.
May I suggest that after your questions concerning your own circumstances when interviewing David Cameron, starting your blogs with an article about you might be considered a trend best avoided.
Complain about this comment
Dear Stephanie,
I read your informative economics blogs with interest. Pardon my ignorance on this matter but just where exactly does the Government borrow its billions from? Is it the IMF, China or rich Gulf states? It would be useful to know just who we will be indebted to for the next 15 to 20 years or so.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Welcome back to the fray!
Many Congratulations on the new addition to the family!
There will be more than enough important economic news to keep you busy and interested for months to come.
I will not write to complain if you do not sing I'm a Gnu or the Hippopotamus song, but please do not suppress any latent musical talent.
I think that the light entertainer in you emerged briefly on Newsnight with the GORDAX Index - very entertaining. Bring it back I say!
However, far be it from me to encourage a career limiting move, or for you to be accused of treating the office of Prime Minister frivolously.
Laughter is therapeutic for all of us and we do need to lighten up amongst the current gloom and daily job losses news stories; important though it is that they are recorded.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Hi Stephanie,
You probably will not remember this but I babysat you once when your elder sister (Laura?)was unwell.
I remember asking your name and you said you wouldn't tell me as no one ever remembered it. You were very determined then, aged about 6 or 7 as I recall.
You did tell me eventually, I said there was no way I could forget your name. When asked why I told you my sister is called Stephanie.
Who cares for your children whilst you are working and travelling?
Regards, PixieMum
Complain about this comment
I am delighted to hear you are Michael Flanders daughter, he was best man at my eldest brother's first wedding.
But don't you think you resume should contain a bit more about your qualifications to write about economics? e.g. degrees etc.
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
This comment was removed because the moderators found it broke the House Rules.
Blimey, this blog has taken long enough to establish. How lon ago did Evan Davies stop writing Evanomics? Anyway, glad that this is underway, I thought that there might be a difficulty with your role as after the announcement you seemed to fall off the radar.
Complain about this comment
Re: benhimself (comment 1)
Also see The Future of Money by Bernard Lietaer (ISBN 0712699910)
Lietaer worked for the National Bank of Belgium where he developed the precursor to the Euro, and was president of Belgium's electronic payment system. He has held research and teaching posts at Berkeley, Leuven and Naropa universities. He was named "world's top currency trader" by Business Week in 1992.
Complain about this comment
hi stefanie. iam from greece. I would like to know whats really hapens in this country who i live. I watch the mass-media for the world recession see the government takes measures here the only thinks look is the gallup-poll.Realy they get out of eurozone the Greece? Witch is the really face of these country in europe? thanks a lot stefanie for your time.
Complain about this comment
Hi Stephanie,
I was just wondering about what your qualifications are. What degree have you got and at which university? I'd like to know because I currently study Economics at A level and I'm thinking about studying it at University.
Thanks
Complain about this comment
2. At 12:26pm on 23 Jan 2009, AvensisTom wrote:
Of course nobody saw this coming .. did they ;)
http://uk.youtube.com/watch?v=2I0QN-FYkpw
This is a wonderful selection of footage illustrating:
1) Peter Schiff certainly saw the crash coming;
2) Many of the other "talking head" guests illustrate that they were smug and terribly wrong!
Complain about this comment
Re: "I'm a Gnu"
Oh go on. You KNOW you really want to!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
We love Stephanie!
There's something very refreshing about the complete absence of hysteria, arrogance, self-importance and a full-blown Messiah complex in this particular blogging BBC economics journalist. If only that could be said for all of her colleagues. ;)
Complain about this comment
Hello Stephanie,
I am concerned that many journalists are making this into a worse crisis than it needs to be. Journalists should surely report 2 things: firstly the facts and secondly a professional analysis. Please spend about 30 mins looking at this video of such an analysis. It is made by Dr Eli Goldratt, a physicist and leading management educator. It provides sorely need hope and a logical way forward.
Regards
milodi
Complain about this comment
Stephanie, I just watched your short interview on bbc news, where you were talking about the Quantitive Easing (Printing Money) that the government is undertaking. I am very concerned about this policy and was shocked by the rather nonchalant way this was being reported, as if it was a normal activity!
There is no idea being given about how much money is being printed and through what mechanism and there is no indication on what basis the decisions are being made and how the QE will be reported to the public. In essence it's very opaque.
Most worrying of all (as you stated in your interview) the BoE is going to be buying government bonds. The logical implication I can take from this is that the govt is now unable to finance its operations through taxation or borrowing, so is now printing money to do it. This is exactly what the govt of Zimbabwe did, and we all know the problems this caused!!
So my question is - why are these policies not being questioned and critiqued in any way by the mainstream media, including yourself?
Complain about this comment
I'm fairly new to blogging and only came across "stephanomics" about 6 weeks ago.
I must disagree with "friendforlife" #16, about the name of your blog .
It was the name that prompted me to sign in. And in the words of the TV commercial, "it does exactly what it says on the tin".
PS May I join your fan club?
Complain about this comment
#16 & 38
It's Stephanomics IMO, because the last economics editor of the Beeb, Evan Davis, had a blog called Evanomics.
Steph, (or Stephanie?) you've an interesting face, and an even more interesting CV. I shall look you up at the FT, though the name rings a bell.
I'm always surprised that more women do not chose to have children when times are bad, I guess it's just counter-intuitive.
I've shunted you to the front of my tabset after Paul Mason and Pesto, I shall read with interest.
Complain about this comment
Steffie: Remember your folks' old friends in Argentina? We still remember you - as a tot - and Laura (with who we had no luck in contacting in California...
"Stephanomics" is a tremendous success among my friends in Britain (we're still living in Argentina). Your take on how the present world economic crisis is affecting emerging nations (like Argentina) which depend largely upon exports of various commodities to developed countries would be greatly appreciated.
All the very best from Denis Dunn and family.
Complain about this comment
Stephanie, pleased you have entered the blogshere. As there have been one or two personal posts here, I'll take the opportunity to add mine. I was in your sister Laura's class at primary school in Chiswick. I actually remember you at six or seven at the time and you were a joyful child - I really hope that not that much has changed! Now, as probably one of the most important puplic commentators on the economy, you might tolerate the occasional post here from me - my CV not being quite in your class!
Congratulations on the arrival of Claudia: hopefully the credit crunch will be 'lessons learned' by the time she understands the phrase. Steve.
Complain about this comment
The chickens are coming home to roost and nothing broon's broadcasting (c. fill in your own expletive) says can explain the the monumental disaster apart from complete incompetence from HMG.
Complain about this comment
Couldn't one argue that it is entirely legitimate for a chancellor to give unrealistically optimistic growth forecasts in order to boost confidence?
Complain about this comment
But ... isn't "Stephanomics" just a tad arrogant?
Complain about this comment
I well remember Michael Flanders and Donald Swan as I have their LP of "At the drop of a hat", and especially the song "I'm a Gnu". I was a student in Imperial College then in the late 50's. I trust your blogs will be as "entertaining" in content as their performances! Good Luck. Incidentally I'm from Malaysia which was then a colony!
Complain about this comment
Complain about this comment
If when the recession ends things will not be how they were before it started, how will we know when it has ended will we just have to believe what we are told or will Stephanie tell us?
Complain about this comment
No one yet has linked The Data Protection Act and the role of Credit Agencies etc to the responsibility for the recent financial crisis. The Data Protection Act was supposed to protect the individual - instead, through the Credit Agencies it creates an information base for banks, an information base that may well be inaccurate. The Credit Agencies produce information about people but the one person they do not get in touch with is the person him/herself to vertify the accuracy of the information that they have collected. The more you borrow, the higher the credit rating. Those who exercise caution are penalised. The marketing of banks used these "credit ratings" to pursue and even pressure people to take greater credit. Is it not time for the BBC to expose the Date Protection Act and the Credit Agencies?
Complain about this comment
Stephanie, you are a breath of fresh air on the BBC news, but can you explain why when the B of E puts money into banks, eg Northern Rock it is taxpayers' money and it is at risk but when it is put into the system as "quantitative easing" it is just created out of nothing?
Prof Tim Congdon in Nov 2007 wrote that the B of E just "created" money to put into NRK at no cost, therefore instead of costing "the taxpayer" the B of E was actually making money out of its penal interest rate charged to NRK. Who is right?
Complain about this comment
You are very HOT!!!
Complain about this comment
This comment was removed because the moderators found it broke the House Rules.
How 2008 Recession was timely executed to get Obama elected?
By Joseph Alapat
Contents
1. The military might dictates the strength of a currency in the foreign exchange market. The military control of Western Europe and Japan by America
2. The need to change the pegged exchange rate system. Floating exchange rate and oil price; two tools to offset the surplus reserves of Japan and West Germany
3. Plaza and Louvre Agreements. The two multinational agreements forcing mainly Japan to keep the exchange value of US dollar as per the dictates of America
4. Why Japan’s huge reserves not reflected in its foreign exchange reserves? Japan second to China in foreign exchange reserves list
5. Why the capital of the world, major part of it kept in US dollars, is almost 50 times more than the total GDP of the world? How such vast amount of capital, not related to actual production and services, came into being?
6. The military might dictate the size the economies of the world. How Japanese economy have been squeezed and kept as second largest in the world?
7. The use of M3 or broad money in the economies of the world after World War II. How it is created and used?
8. How M3 or broad money creation got introduced in foreign exchange system?
9. Difference between M3 or broad money creation in local monetary system and in foreign exchange system.
10. Why Japan plays subordinate role to the USA?
11. How the US introduced a system to channel the excess foreign exchange of Japan for investment in America and other western countries?
12. How the US eradicates the excess foreign exchange of Japan?
13. Why boom and recession cycle happens occasionally in the US economy?
14. The use of oil money and recession in US presidential elections
15. Economic and political reasons for 1992 recession
16. Political necessity for the 1992 recession and how it was utilized?
17. Political necessity for the 2008 recession.
18. Economic maneuvering for the 2008 recession
19. Reasons for the collapse of the subprime market in the US
20. Reasons for the sudden collapse of the big investments firms in the US.
21. Political and economic gains from the 2008 recession
22. Replacement of foreign exchange by local M3 or broad money
23. Net losers in the 2008 recession
----------
1
--------
THE MILITARY MIGHT DICTATES THE STRENGTH OF A CURRENCY IN THE FOREIGN EXCHANGE MARKET.
THE MILITARY CONTROL OF WESTERN EUROPE AND JAPAN BY AMERICA
The foreign exchange transaction takes place only where there is bilateral trade. The exporter and importer together decide in which currency the inter-country trade has to be paid. Here they depend on the commercial banks for their money transactions and these commercial banks are controlled by the respective central banks of each country. The central banks in turn, are controlled by their respective governments. In case of bilateral trade between two countries, if one of them has greater say as a result of its military strength, then the other country will follow the instruction of the mightier one. That direction will go down to the lowest level from the government to the export or import firm of the militarily weakest country. The military might of the US over Western Europe, Japan and GCC countries of the Persian Gulf help America to force these countries to do all their major export-import transactions in US dollars. In the case of Europe, as a result of the creation of Eurozone that takes care of even the economically backward former East European nations, US have given some concessions in its overseas trade but that too only within limits.
US could force Japan, Western Europe and GCC countries of Persian Gulf to do what it wishes with its dollar currencies. All the above countries are dependent on the US their defence. Hence these countries are not in a position to charter an independent political path that is essential for maintaining a currency free of foreign control. The US has got two multinational agreements with some of the above countries that will help it to maintain the exchange value of its dollar currency.
----------
2
--------
THE NEED TO CHANGE THE PEGGED EXCHANGE RATE SYSTEM.
FLOATING EXCHANGE RATE AND OIL PRICE; TWO TOOLS TO OFFSET THE SURPLUS RESERVES OF JAPAN AND WEST GERMANY
At first the US dollar was pegged to gold and the value of other currencies was in turn pegged to dollar as per the IMF agreement got signed by these countries soon after the end of World War II. Many countries were still under colonial rule when they signed this agreement. For example, in case of India, the top bureaucrats serving in its Finance Department signed this agreement in Washington D.C. under instruction from their political bosses. The colonial India was under the political control of British Parliament. The IMF agreement once signed was binding on the subsequent independent India. If the independent India decided to cancel this agreement, it stood to lose the huge sterling balance of around one billion sterling pounds which it had accumulated in Bank of England during World War II.
Thus the whole foreign exchange system after World War revolved on US dollar and the huge gold stock of America. After 1965 as Japan and West Germany began to accumulate enormous trade surplus, it was decided to end the pegged exchange rate system and use the currency exchange rate as a tool to offset the foreign exchange surpluses of the above two countries. The weapon to be used was oil. As a preliminary step, the exchange rates of all major currencies were slowly shifted from the pegged rate system and by March 1973 they were floating. By 1971 the oil exporting small states of Persian Gulf were given independence by Britain. Till then Britain had political control over these states and hence got their oil sold in its currency. But after granting independence, these new nations were forced to sell their oil in the international market in US dollars. After World War II, Britain allowed the sale of oil by independent countries, to be conducted in US dollars in the international market. Hence by 1972 Saudi Arabia, Iran, Iraq and Kuwait were already selling their oil in US dollars. Now with the independence of all the small oil exporting states, the share of oil sale in US dollars in the international market has increased tremendously. With all the groundwork done, all that was needed, was a political event to hike up the value of oil which will greatly affect Japan, West Germany and other oil importing countries. The Arab-Israel War of Oct 1973 was used as camouflage to hike up the oil prices and it greatly affected the foreign exchange surpluses of Japan and West Germany.
----------
3
--------
PLAZA AND LOUVRE AGREEMENTS.
THE TWO MULTINATIONAL AGREEMENTS FORCING MAINLY JAPAN TO KEEP THE EXCHANGE VALUE OF US DOLLAR AS PER THE DICTATES OF AMERICA
Later the oil price increase of 1979 also was utilized to bring down the surplus foreign exchange reserves of Japan and West Germany. In the long run Japan and West Germany slowly adjusted their economies to the wide fluctuations of oil prices. And when these countries utilized their surplus foreign exchange to keep the exchange value of US dollar high which in turn benefited their export goods, America forced these countries along with other major industrialized nations to sign the Plaza Agreement in 1985. As per this agreement US could force these countries to depreciate the value of its currency to whatever level that was required. At that time it was needed as export surplus countries like Japan and West Germany were parking their surplus foreign exchange in their accounts in America resulting in the appreciation of value of dollar that in turn resulted in uncompetitive higher price for export goods of the US.
This agreement in turn resulted in the undue value depreciation of US dollar. There was no agreement by which America could force Japan and West Germany to force them to appreciate the value of dollar by parking more foreign exchange mainly dollars in their accounts in the US. Thus, Louvre Agreement was signed in 1987. This agreement also saw the emergence of Japan as the major player in the international foreign exchange system. Following this agreement the Federal Reserve of America and Bank of Japan adopted a target zone in order to stabilize the dollar-yen exchange rate (mainly the dollar exchange rate), by using daily exchange intervention data. Since America had total military control over nations of Western Europe and Japan, US could impose its currency dollar as the base currency on which the value of other currencies depended. Therefore, US argued that any substantial shifts in the exchange value of dollar will damage growth and adjustment prospects in other countries. Hence Japan in particular, was forced to maintain the exchange rate of dollar around the existing levels. Besides to allow an outlet for investment for the huge surplus accumulated by Japan, Bank of Japan was forced to reduce its interest rates that will in turn allow its people and firms to avail low interest rate loans in yen and convert it to US dollars for investment in America. This was later known as yen currency carry trade.
----------
4
--------
WHY JAPAN’S HUGE RESERVES NOT REFLECTED IN ITS FOREIGN EXCHANGE RESERVES?
JAPAN SECOND TO CHINA IN FOREIGN EXCHANGE RESERVES LIST
China has only recently amassed huge foreign exchange reserves. But Japan has been accumulating foreign exchange reserves from 1965 onwards. As per foreign exchange reserves outstanding as on Dec 2008, China has $1,950 billion against $1,030 billion of Japan. The huge investments by Japanese as well as their firms in America through the yen currency carry trade which has accumulated to around $6,000 billion will not get reflected in the foreign exchange outstanding of Japan. Moreover Japanese firms that make huge profits from exports to the US, could invest part of their profits in purchasing land and building in America. That kind of investments make out of surplus foreign exchange will not be reflected in the foreign exchange reserves of Japan. Besides many of Japanese firms especially auto manufacturing companies have set up production units in America. Their huge profits can at any time be remitted back to Japan. That will not come in the foreign exchange reserves of Japan. China does not have that kind of huge investments in the manufacturing sector of USA.
----------
5
--------
WHY THE CAPITAL OF THE WORLD, MAJOR PART OF IT KEPT
IN US DOLLARS, IS ALMOST 50 TIMES MORE THAN THE TOTAL
GDP OF THE WORLD?
HOW SUCH VAST AMOUNT OFCAPITAL, NOT RELATED TO ACTUAL PRODUCTION AND SERVICES, CAME INTO BEING?
Japan has been accumulating trade surplus with the US from 1965 onwards. When US purchases more imported goods by paying its currency, it almost increases the dollar funds by almost double the amount of the value of the imported goods. For example a country that have $1 billion funds in circulation, the manufacture of goods worth $1 million will result in the increase of money circulation by that much amount, and so the total funds in circulation will come to $1.001 billion. But if that country purchases $1 million worth of goods from abroad and pays for it in its own currency, then the funds in circulation goes up by double the value of goods purchased from overseas. This is because $1 million worth of funds has to be issued internally in order to enable its people to have the extra money to purchase these goods. Besides, the country has to pay $1 million to the foreign nation as the value of imported goods. Thus, the dollar funds in circulation increase by $1.002 billion in the case of goods purchased from abroad and paid in its own currency. Hence, the huge dependence of the US on imported goods has resulted in the circulation of huge amount of capital in the world that is almost 50 times more than the total GDP of the world.
----------
6
--------
THE MILITARY MIGHT DICTATE THE SIZE THE ECONOMIES OF THE WORLD.
HOW JAPANESE ECONOMY HAVE BEEN SQUEEZED AND KEPT AS SECOND LARGEST IN THE WORLD?
If exchange rate of a currency appreciates much, then the size of the economy of that country also changes. For example when the value of yen to a US dollar went up to a peak of 79 in 1995, for a while Japan’s economy became the largest economy of the world replacing that of the US. Thus exchange rate controls the size of the economy.
If Japan uses its foreign exchange of $7 trillion to fix the value of its currency as in a real floating exchange rate system, then its economy could become the number one in the world replacing that of USA. But no super power will allow that to happen as that will jeopardize its military position in the long run.
US with its military control over nations of Western Europe and Japan could force these countries to make changes in the exchange rates for which it got the Plaza and Louvre agreements signed. All this shows the military might dictate the size of the economies of the world.
----------
7
--------
THE USE OF M3 OR BROAD MONEY IN THE ECONOMIES OF THE WORLD AFTER WORLD WAR II.
HOW IT IS CREATED AND USED?
After the introduction of Keynes style of economic model by almost all governments across the world after World War II, the phenomena of depletion of the quantity of currency in circulation that often led to depression, has become a matter of the past. Hereafter money circulation increased year after year as the governments pumped in more local currency funds into their economies by way of M3 or broad money often to cover up the budget deficits.
In the past, currencies were based on gold, silver and copper metals. Hence there was a limit to the extent to which money can be produced. Even though paper currencies were first issued based on the stock of gold and silver, soon it was replaced as the increase in population necessitated the issue of fresh new money in greater amounts that could not be pegged to existing meager gold and silver stocks.
The governments in each country will issue a loan paper for certain amount of local currency in which it promises to pay its central bank, the mentioned amount with interest after a period of time, usually 10 years. The loan paper of the government is purchased by the central bank which issues that much local currency funds to the government for spending. After 10 years the government will come with a loan paper with a bigger amount sometimes 10 or 100 times more than the old one, and ask the central bank to purchase it. The central bank after purchasing it, adjusts the old loan paper with interest, and pays the balance to the government for spending. This type of money creation often gets repeated many times a year. The money created through this process is called M3 or broad money. Without this money, no government can function in the world. And it is required for the smooth functioning of every economy. Absence of it will create shortage of money that will result in shrinking of economy and depression that in turn will lead to political and social unrest.
But in modern world, it has to be issued as per the requirement of the each economy. A big country with huge population will have to go for huge amounts of it. But if a small country with a tiny population also goes for the same scale of M3 or broad money creation, then it will result in super inflation and huge depreciation in the value of its currency in the foreign exchange market. So it has to done in moderation after taking into consideration several economic factors.
----------
8
----------
HOW M3 OR BROAD MONEY CREATION GOT INTRODUCED
IN FOREIGN EXCHANGE SYSTEM?
Ever since the foreign exchange rates were made floating, M3 or broad money creation process of the monetary system got introduced into the foreign exchange system. Hereafter foreign exchange was created in M3 or broad money style in US dollars based on oil and Japanese export sales both of which was conducted in American currency. And its total volume went on increasing year after year in the world.
----------
9
--------
DIFFERENCE BETWEEN M3 OR BROAD MONEY CREATION
IN LOCAL MONETARY SYSTEM AND IN FOREIGN EXCHANGE SYSTEM
Unlike the local currency fund created in a country which ones issued will always been in circulation in the era of currency increase by way of M3 or broad money creation, foreign exchange once created can be partly eradicated.
Local currency funds issued within a country will never get eradicated. It can be reduced by using monetary tools like interest rates and increase in the ratio of bank reserves. But even then, in the long run it will go on increasing year after year as population increases. Foreign exchange also has been increasing year after year as international trade of the world has been growing each year. For example, if the US purchases $10 billion worth of goods from Japan for 10 years, at the end of tenth year Bank of Japan will be having $100 billion in its foreign exchange reserves even if it have paid to the local Japanese exporters, the proceeds of their exports to America in yen through commercial banks under it. Thus even after settling all the export transactions, Bank of Japan will be holding $100 billion.
----------
10
--------
WHY JAPAN PLAYS SUBORDINATE ROLE TO THE USA?
As said Japan have been having trade surplus with the US from 1965 onwards. And all the foreign exchange it had gained from then onwards has now come to its credit. And its quantum has increased many folds after the floating exchange rate system was introduced in 1973. If Japan has utilized this foreign exchange to fix the value of its currency yen, then Japanese economy would have become number one in the world replacing the US. But Japan depended on the US for its defenses. US maintain military, air force and naval bases in Japan and even forced Japanese government to pay for its maintenance by appropriating money in Tokyo’s annual budget. Thus if Japan disagree to the dictating style of the US, and America decides to drop another atom bomb over Hiroshima, the Japanese government will have to pay for it. And using its military might and dictating power, the US has got the Plaza and Louvre Agreements by which it could force Bank of Japan to withdraw or accumulate foreign exchange in its account in America based on which the value of dollar will appreciate and depreciate accordingly. If Bank of Japan is forced to take out its foreign exchange from its account in America, then it has to invest it in US treasury bills or other bonds in the US itself. It can only maintain that much foreign exchange mainly dollars in its account in America that was allowed by the US. This was because the US wants to maintain a constant exchange rate value for its dollar currency.
----------
11
--------
HOW THE US INTRODUCED A SYSTEM TO CHANNEL THE EXCESS FOREIGN EXCHANGE OF JAPAN FOR INVESTMENT IN AMERICA AND OTHER WESTERN COUNTRIES?
A permanent solution for the investment of the surplus foreign exchange of Japan in USA and other western countries were made under the Louvre Agreement. As per this agreement Bank of Japan was forced to maintain very low interest rates and allow Japanese and their firms to have free conversion of yen funds to US dollars and other major currencies.
Bank of Japan which now holds major part of the foreign exchange has to find out ways to get it invested somewhere. Since foreign exchange is not required for any investments in Japan except some raw material imports, Bank of Japan was forced to induce its citizens and firms to invest foreign exchange overseas. By maintaining a zero interest rate in saving accounts and 1 to 3 percent interest rate for loans, Japanese and their firms are induced to take yen loans at very cheap rate and could convert it into foreign exchange and invest overseas. Besides as Japanese companies make huge profits from exports, most people of Japan have huge savings as these companies give bonus each year from their profits. As earning returns from overseas investments were greater than putting money in zero interest rate saving bank account in Japan, most of the savings of the Japanese got routed through the currency carry trade to get invested in America and other countries. In addition many Japanese, to make more money, took low interest rate loans in yen and routed it through the currency carry trade and also got it invested in overseas countries mainly America. Those who did not have time to do it personally invested the funds with Japanese mutual funds and equity management companies who in turn invested lump sum amounts overseas. Most of it went to the US equity market. As the flow increased, money flowed from equity to mortgage market of the US.
----------
12
--------
HOW THE US ERADICATES THE EXCESS FOREIGN EXCHANGE OF JAPAN?
As the total amount of foreign exchange can be depleted once it is created, America has to find ways for it. From 1965 it was decided to use its military superiority to devise ways to takeout the surplus foreign exchange from Japan. Since it was possible to bring down the total quantity of foreign exchange once it has been created, it was feasible to take out the excess foreign exchange from Japan using political and economic events. Thus, a long list of events could be seen that were utilized to take out the excess foreign exchange from Japan.
1. Delinking of foreign exchange from the existing
pegged exchange rate system.
2. Arab-Israel war and the oil price increase in
1973.
3. Oil price increase in 1979.
4. Recession in the US in 1981.
5. Plaza Agreement 1985.
6. Louvre Agreement 1987.
7. Gulf war of 1990-91.
8. Bursting of Japanese economy in 1992.
9. Recession in the US in 1992.
10. Sale of Alaskan oil to Japan in early 1990s.
11. South East Asian Crisis of 1997.
12. Oil price increase and decrease through OPEC
after 1999.
13. Iraq war of 2003.
14. Recession in the US in 2008.
----------
13
--------
WHY BOOM AND RECESSION CYCLE HAPPENS OCCASIONALLY IN THE US ECONOMY?
Since Japan has surplus foreign exchange even after paying for its imports, it invested this surplus in the overseas stock market especially in the US. And for eradicating this foreign exchange, boom and recession cycle has to happen in the US economy once a while.
Americans should undergo the pain of recession occasionally to prevent Japanese economy from overtaking their own economy. And after globalization, they could pass on that pain to other countries.
----------
14
--------
THE USE OF OIL MONEY AND RECESSION IN US PRESIDENTIAL ELECTIONS
The use of oil money in US presidential elections started with the second oil price increase of 1979.
From then onwards oil price increase was utilized not only to control the surplus reserves of other countries but also to finance the US presidential elections. One of the first actions of President Ronald Reagan who got elected in 1980 was to deregulate the oil prices and leave it to be decided by market. Hereafter oil money decided who got elected as the US president.
----------
15
--------
ECONOMIC AND POLITICAL REASONS FOR 1992 RECESSION
The only exception to the influence of oil money in the US elections was in 1992, when President George W Bush Sr was defeated by Bill Clinton. Here the adverse affects of recession were used to overcome the oil money backing to President Bush. The recession at that time came as a result of the eradication of the huge foreign exchange reserves of the GCC countries of Persian Gulf to finance the Gulf War of 1990-91 and of Japan as a result of the bursting of Japanese economy.
Besides the oil rich Persian Gulf countries were highly in debt to America as they financed the first Gulf War and did not have much surplus money to spare.
The decision to replace President Bush Sr, who had successfully supervised the first Gulf War and liberated Kuwait, was taken after he went unconscious and fell on the lap of Japanese prime minister at an official ceremony in Japan. That happened soon after the Gulf War.
----------
16
--------
POLITICAL NECESSITY FOR THE 1992 RECESSION AND HOW IT WAS UTILIZED?
The picture of George W Bush Sr falling on the lap of Japanese Prime Minister had showed the physical weakness of the top executive of the most powerful nation of the world that controlled Japan. So it was time to bring in a young president who can be projected as exploiter of female sex with his sex organs, to get rid of the indignity caused by President George W Bush Sr in Japan. Till then, any extra-marital sex scandal involving a presidential candidate, would automatically put an end to his presidential campaign. But Bill Clinton who was already marred by such sex scandals got elected as president, as a result of the economic recession. After the election his sex scandals were exposed to the maximum so as to wipe out any strain of the earlier President Bush’s Japan episode.
If Bill Clinton’s sex scandal background could be set aside with the help of recession, the same thing happened in the 2008 presidential elections. Obama was a first time senator and was black. No person with this record can ever think of becoming the president of USA after looking into the history of black political leaders of the past who had much greater experience. It was like the 1992 election scenario. Till 1992 any extra-marital sex scandal involving a presidential candidate, doomed the prospects of that candidate. But Bill Clinton who was well known sex offender got elected as president. And that was got done through recession.
----------
17
--------
POLITICAL NECESSITY FOR THE 2008 RECESSION
The 2008 recession was well planned. After the invasion of Afghanistan and Iraq, it has become obvious that America and its NATO partners together cannot control these two countries. Britain as the sole super power that had controlled these regions for 150 years, knew that it was able to control these two regions only with the help of the huge Indian army which was under its control. In the post even though Britain withdrew from Afghanistan after each Anglo-Afghan Wars, each time the British were able to take part of the old Afghanistan and incorporate into British India. Thus Baluchistan, North West Frontier Province and Federally Administered Tribal Area of present Pakistan were taken away from Afghanistan. And that is why Pakistan is having more Taliban followers than in Afghanistan.
During World War II, it was the Indian army that helped Britain to re-conquer Iraq from the pro-German local government.
Thus it was time to roll in India to the side of the US. And for that it was necessary to have a black man as president. Obama could equate better with the leaders of Africa and Asian countries which in turn will result in India coming closer to the US.
----------
18
--------
ECONOMIC MANEUVERING FOR THE 2008 RECESSION
In the normal circumstances Americans will not elect an Afro-American as president as whites are in great majority. But a great recession that will wipe out their precious savings and make millions of them jobless, will make the majority white Americans vote the other way.
Thus only in a great economic turmoil, will the white Americans vote for a black man to the office of president. All that was needed, was to time the events, as greatest impact of recession coincided with the election date.
----------
19
--------
REASONS FOR THE COLLAPSE OF THE SUBPRIME MARKET IN THE US
At first Bank of Japan was forced to withdraw huge amounts from its account in the US. This brought down the value of US dollar to a very bottom level. This low level was maintained from April 2007 to early Sept 2008. The Japanese investors, who always had to take back their money from America to Japan for repayment of their loans or for repayment by investment companies to their clients, slowly began to withdraw their investments from the US. This at first affected the US mortgage market. And it stayed like that for some time for about one and half years.
----------
20
--------
REASONS FOR THE SUDDEN COLLAPSE OF THE BIG INVESTMENTS FIRMS IN THE US
In Sept 2008 after the party conventions, Obama and McCain were neck to neck in opinion polls. Even though the value of dollar has come down, many of the Japanese investors hoped things will improve as the oil was traded in US dollars and oil prices were at record peak as a result of funding requirements for the US elections both to White House and to the Congress. Then it was decided to utilize OPEC to bring down the price of oil. And when the price of oil also went down heavily, it sent alarm bells to the Japanese investors. If the situation remained like that, those who have taken yen loans to invest in the US through the currency carry trade, will not be able to pay back their loan amount with interest. It was because the low exchange value of US dollar will give them only less amount of yen after the exchange conversion. In that case they will have to incur loss on the currency carry trade investments. Now majority of Japanese investors joined the bandwagon and began to withdraw their investments in the US and convert it to yen for onward remittances to Japan. This led to the sudden collapse of the many investment firms and banks in the US.
----------
21
----------
POLITICAL AND ECONOMIC GAINS FROM THE 2008 RECESSION
And through this recession, two things were achieved. A black Afro-American was elected as US president and around $1.5 trillion foreign exchange of Japan had got liquidated. Since foreign exchange earned was precious, Japan does not want to waste it by utilizing it for paying for unwanted imports. It allowed its people and firms to use this for investing in the US and as such investment in America formed major part of it. And when that investment turned bad as a result of the recession, a major part of the foreign exchange that was earlier transferred from Bank of Japan’s account to the stock market of the US for the investments by Japanese people and their firms have become net gain for America. Since major part of these investments have become bad, only a small percentage of the earlier transferred foreign exchange need to be transferred back to the account of Bank of Japan. Thus the 2008 recession resulted in a net foreign exchange eradication of around $1.5 trillion from the account of Bank of Japan. In the double entry book keeping, for every debit there should be a credit, the loss of around $1.5 trillion to Japan is a gain of that much amount to the US. It is because US does not need to pay that much amount back to Japan. Britain also gained in the same way.
----------
22
--------
REPLACEMENT OF FOREIGN EXCHANGE BY LOCAL M3 OR BROAD MONEY
Since the huge trade deficit of the US for many decades have resulted in the issue of dollar funds by double the amount of price of goods imported to the US. This has resulted in the huge increase in the capital of the world and most of it was in foreign exchange held by Bank of Japan. And as Japan began to invest this money in different stock exchanges of the world through currency carry trade, this foreign exchange came into the hands of central banks of different countries. Money through this currency trade even got invested in countries like India through New York investment firms. This flow made changes in the balance sheets of central banks of many countries. Before the currency carry trade started, central banks purchased loan papers or treasury bills from their governments and issued local currency funds against it. Thus these loan papers or treasury bills came on the asset side of the balance sheet of these central banks and the local currency funds issued against these instruments came on the liability side. But after the currency carry trade began, foreign exchange balances held became an important item on the asset side of the balance sheet of the central banks and the local currency funds issued against this foreign exchange came on the liability side.
The sudden eradication of the major part of this foreign exchange in the US as a result of recession, resulted in a reduction in the balances in the foreign exchange accounts of these central banks. This in turn resulted in less local currency fund issues.
The unexpected shortage of such a huge amount of money that have earlier been getting poured into the US and other economies through the account of Bank of Japan have resulted in liquidity crisis. Now it was the duty of the US and other governments to infuse that much money into their economies through M3 or broad money creation method. They have to replace the Japanese funds with their own currency funds created by purchase of loan papers or treasury bills.
----------
23
--------
NET LOSERS IN THE 2008 RECESSION
Even though the huge monetary package of the US government is for spending money to prevent banks and major firms from getting liquidated and to keep the jobs of its people, not a single dollar is paid as compensation for those who lost money in the shares especially the Japanese investors. And for that Bank of Japan has also come up with a monetary package to help Japanese investors. And funds for it will be raised not from foreign exchange but by the issue of M3 or broad money in yen currency.
The net loss in the share market crash of the US as a result of 2008 recession was calculated to be around $3 trillion. Since the US was financing the Iraq war of 2003 as well as its imports through deficit financing, large amount of capital also have accumulated in the US, other than the foreign exchange capital flow from the account of Bank of Japan. Every time US have trade deficits, the American government will have to come with large spending plans to get that much M3 or broad money issued in the local economy to enable its people to have sufficient money to purchase the foreign goods. In the 1960s and 70s it was the Vietnam war, in 1980s it was Star War program, in 1990s the Gulf War loan repayment by the GCC countries of Persian Gulf that lasted till 1998 helped to avoid such programs, in 2000s it was the Afghanistan and Iraq wars.
Thus the recession took the surplus money not only from Bank of Japan but also from the people of the US. Therefore the loss of around $3 trillion in the stock market crash of the US during the 2008 recession has to be shared almost equally by Bank of Japan and US investors. For Bank of Japan the loss is more precious because it was from its hard earned foreign exchange reserves. It can only be replaced by its future export earnings. The US investors also has to regain their losses from their future earnings. And to facilitate that the US government has to come up with huge M3 or broad money creation in its currency. And for that different stimulus packages has to be implemented.
BOOKS FROM THE SAME AUTHOR TO BE PUBLISHED SHORTLY
How spices trade helped in the establishment of Christianity as the state religion of Roman Empire and publication of Bible? How the same spices trade resulted in the transfer of the central clearing system of Roman Empire from Rome to Constantinople?
How Venetians controlled the central clearing system of Europe for 600 years?
How a single technological breakthrough in cannon technology helped Britain to win the Battle of Plassey in 1757 that paved the way for the establishment of a British Empire controlling the whole world?
The British takeover of the central clearing systems of Europe, India and China.
How technological breakthrough in cotton textile production and steam engine helped Britain to make its central clearing system a global one with worldwide export of British made cotton goods and railways?
The need for World War I. The huge advancements that was being made by Germans in the field of chemical engineering. If the war was postponed, the results of the chemical poison gas warfare in France would have been a different one.
A technical breakthrough in atomic physics engineering by Germany or Japan would result in Britain facing the same fate of Mughals in the Battle of Plassey in 1757. So how Britain started the Great Depression and the urgent need for it?
The need to change the young king of Britain just before World War II to maintain the status-quo of the British Empire as the sole super power of the world.
How the foreign exchange rate fixing system was restructured in a different way after World War II? The greatest monetary deception world has ever seen.
The need to keep as secret the fact that unlimited energy could be obtained from nuclear materials which in turn could replace oil totally.
President John F Kennedy’s assassination—the urgent need of the time to avoid the collapse of the existing world monetary order.
The well executed plan behind the Islamic Revolution in Iran to cut cheap drilled oil exports from Persia to the US and to replace it with the oil from Canada that is costlier to produce from the oil sands as it has to be processed with natural gas for up-gradation before being sent to the refinery. Canada is now the biggest oil importer to USA and the numerous Canadian private oil exporters are the major financers of US presidential election.
How the handover of Hong Kong to China was linked to the South East Asian Financial Crisis?
Complain about this comment
View these comments in RSS