Japan - The world's second imperialism hit by the financial crisis

Jan/Feb 1998

In mid-November last year, the financial crisis finally reached Japan, the world's second industrial and imperialist power. This raised the spectre of a possible meltdown, with certain, but unpredictable, worldwide consequences. The situation was considered serious enough in December for the Japanese government to introduce an emergency package worth almost $300bn of public funds, most of which will be used to bail out financial institutions and companies threatened with bankruptcy.

Six months after the financial crisis broke out in Thailand, last July, it is therefore still impossible to say what the long-term consequences or further developments will be. Only one thing seems certain - that it is still far from being over.

Looking back, this crisis seems to have travelled across the world in leaps and bounds. At various points it appeared to be losing momentum, only to re-emerge elsewhere, often under different forms but always with renewed strength. In any case, after these six months of leap-frogging, no country can boast of being unaffected one way or another by the crisis, and practically no sphere of the economy either. Thus is demonstrated in practice the extent to which the capitalist system welds the entire world economy into one single crisis-ridden entity.

In this context, the reiterated claim by the so-called economic "experts" that the "fundamentals" of the western imperialist economies are nevertheless healthy, is not just a meaningless incantation. It is a clear admission by these "experts" of their own impotence at understanding, let alone controlling the economic system which they are meant to oversee. For these "fundamentals" - in other words the mechanisms that these imperialist powers use to shape the world market to fit the rival appetites of their repective bourgeoisies - are proving once again to generate endemic diseases across the world, threatening to ruin entire countries, and possibly to cripple the world economy as a whole.

From Thailand to Japan, via Wall Street

Ultimately, it is the development of the crisis itself which is now providing a striking refutation to the "experts'" fairy tales.

When, on 2nd July last year, a speculative run on the Thai currency caused its forced devaluation, the south east Asian monetary system started to collapse like a house of cards, engulfed in a wave of speculative sales. Every currency was affected. One after the other, all these countries were forced to surrender and watch the value of their money tumble down. The weakest gave way first, the others followed soon after. Even South Korea, the only country in this region to be classified by international agencies as an industrialised economy, was eventually forced to give in - although long after the others, in November. To date, only the Hong Kong dollar has survived unaffected, but not without a huge dent in the territory's currency reserves.

By October, however, this monetary crisis had already mutated into a wholesale stock market crisis. This time Hong Kong, the flagship of imperialist financial penetration into Asia, was first in the firing line. On 22 October, the territory's share market plunged suddenly by over 10%. Within five days Wall Street followed, taking in its trail almost every single stock market worldwide.

Then there was an apparent pause. The world's largest stock markets outside Asia recovered slowly, limiting their damage to a total drop of less than 3% - a small price to pay, when compared, for instance, with the 30% hike in share prices since the beginning of the year in London. But this was only a pause from the point of view of the rich western countries, because in Asia, and in fact throughout the Third World as well, the fall went on inexorably, as floating capitals were being divested and transferred to safer areas.

However, behind the relative lull on the rich countries' stock markets, new, sinister cracks were beginning to appear in South Korea, but this time it was the production sector itself which was affected. At the end of October, Kia Motors, the country's 8th largest industrial group and 2nd car manufacturer, went into receivership, crushed by a combination of low sales, high unpaid debts totalling over $11bn and shortage of credit. Thereafter, the list of South Korean large-scale bankruptcies just kept on growing - it seemed as though the world's eleventh largest industrial economy was itself going to the wall. By the end of November the world's financial authorities, that is primarily US imperialism, became so worried about the situation in South Korea that they produced the largest "rescue" package ever put together by the International Monetary Fund - "rescue" not for the Korean population threatened with mass redundancies and a rocketting cost of living, of course, but for Korea's imperialist creditors who now faced the risk of the country defaulting on its massive debt.

But as the first announcement of this IMF package for South Korea was made, on 29 November, already the crisis had shifted to another sphere - that of the Japanese banking system this time. That very same day, Yamaichi Securities, Japan's 4th largest brokerage bank, went into receivership with estimated net losses valued at $27bn and a growing trail of liabilities hidden illegally in various tax havens. The collapse of this heavyweight of Japan's stock market trading came only days after that of Takugin bank, a smaller commercial bank, but still the 10th largest in its category. And, as the following days were to show, this was only the tip of a huge iceberg of threatening bankruptcies.

This time, the chickens were coming home to roost. The financial crisis - which had already spread far beyond the financial sphere, with the string of industrial closures it had caused in south east Asia - was no longer limited to a few Third World countries, nor even to so-called NICs (New Industrialised Countries in the terminology of the IMF) like South Korea. The epicentre of the crisis had now moved firmly to the heart of Japanese imperialism.

Japan's south east Asian backyard

That Japan, of all imperialist powers, should be the most affected by a financial crisis in south east Asia, was of course predictable.

Unlike its American rival, the Japanese bourgeoisie never had a large enough domestic market to allow the development of an industrial apparatus capable of competing with the other imperialist bourgeoisies on the world market. Japan's population is less than half that of the USA, and its territory almost 30 times smaller. Moreover, Japan is relatively poor in natural resources: it has almost no metal ore and, more importantly, hardly any petrol. Even the shortage of cultivable land has long been a problem for Japan.

For over a century, the Japanese bourgeoisie has used south east Asia to loosen the straightjacket of its limited domestic base. This was first done using colonial means, with the annexation of Taiwan in 1895, Mandchuria in 1900, and Korea in 1910. Their mineral resources and fertile land provided Japan with the raw material and agricultural products it so badly needed.

The Japanese colonisation had, however, some very specific features compared to that carried out by British imperialism in Asia, for instance. British colonies like Malaysia or Burma were merely used to loot local natural resources for British manufacturers. India became a source of cheap semi-finished products (textiles produced by the existing local industry) and a market for British manufacturing. But in neither of these cases did colonisation develop substantial local industries or infrastructures. By contrast, the Korean and Taiwanese economies, in particular, were developed to be integrated into the Japanese economic machinery. So that by the time Japan was forced to withdraw at the end of World War II, Korea, for instance, inherited a relatively modern transport and electrical infrastructure, a small but significant industrial sector, ranging from textiles to chemicals, mechanical construction and armaments, and a complete banking system.

The settlement following World War II gave US imperialism the upper hand in south east Asia. But they never sought to wipe out Japan as an imperialist power. On the contrary, particularly once the Cold War began, US imperialism helped the Japanese bourgeoisie to rebuild its economic strength - within acceptable limits, for the large US conglomerates, of course - so that it could eventually resume its role as a regional guarantor of the imperialist world order.

To make up for the loss of its former regional colonies, Japan was allowed to take the opportunity of the British withdrawal from south-east Asia to extend its network of suppliers of raw materials to the entire region. Throughout the Cold War, a division of labour operated between US and Japanese imperialism. The USA provided the troops and finances for its heavy military presence, the wars in Korea and Vietnam, the blockade of China and the suppression of radical nationalist and working class movements across the region, while Japan provided the necessary economic and logistic backup. Japanese economy, together with that of South Korea and Taiwan, thus produced a large part of the supplies used by the US army, while all sorts of consumer products made in Japan began to spread across south east Asia. Many Vietnamese may not have realised it, but both the US bombs threatening them and the bicycles they often used in order to move around during the war, were made in Japan!

A Trojan horse for Japanese imperialism

The end of the Cold War era left more and more space for Japan to expand its regional economic power.

Already, during the Vietnam war, the American government had put pressure on Tokyo to take its share of the financial overheads of the war by conceding large loans to the South Korean regime as a "reward" for its loyalty to imperialism. By the mid-70s, Japanese banks replaced their US rivals as the region's main lenders.

Meanwhile new Japanese subsidiaries and joint ventures began to mushroom across south east Asia. At first, these productive investments were mostly an attempt to reduce Japan's dependence on the large Anglo-US conglomerates for its supplies - an attempt which, however, was largely a failure.

But what really propped up Japanese industrial investment in south east Asia was its increasingly tense trade relations with the USA. By the mid-1960s the Japanese industry was already largely dependent on the American market where it had invested heavily in a network of commercial facilities. The US conglomerates, on the other hand, were becoming increasingly nervous about foreign, and specially Japanese competition. In 1971, after US trade with Japan had shown a deficit for three years in a row, Nixon launched a campaign against Japan's "abuse of free trade", imposing a series of new tariffs on Japanese imports. At the same time, all imports into the US were penalised with a 10% surcharge and constrained within a system of "voluntary quotas" - obviously, import quotas could only be "voluntary" in the kingdom of "free trade"!

This was a major blow to the Japanese industrial groups, a blow which was compounded by the subsequent drastic rise in world oil prices which, given Japan's almost total dependence on the US oil majors, hurt Japan more severely than its imperialist rivals.

Ironically, the Japanese capitalists borrowed their response from US imperialism itself - and as a number of US companies had already begun to do, they resorted to subcontracting out some of their production to the cheap labour countries of south east Asia, only on a much more massive scale. With time, the major Japanese companies, particularly in car manufacturing and electrical engineering, reorganised their entire production process at the scale of the whole south east Asian region, operating as if it was a single economic entity. But then, of course, there were always limits to this economic integration: the central nervous system of this organisation - i.e. the firms' headquarters, research facilities and financial backers - remained in Japan, as well as most of the profits thus generated.

However, while the extensive use of such reorganisation and subcontracting did reduce production costs, thereby increasing profits on the Japanese market and helping to overcome the increased duties imposed on Japanese imports to the USA, this did nothing to reduce Japan's trade surplus with the USA nor to bypass the USA's more or less overt quota system on imports.

This led the Japanese conglomerates to adopt a different policy. While some of them just subcontracted component production to local companies or purpose-built subsidiaries in south east Asia, others (or sometimes the same ones) encouraged, or even financed entirely, the development of "local" companies which then produced rebranded Japanese products.

The case of the Malaysian car venture Proton, which has been for over a decade the flagship of the Malaysian regime's brand of nationalism, provides a striking example. The origins of Proton goes back to the early 1980s, when Mitsubishi Motors, Japan's fifth largest car manufacturer and an affiliate of the powerful industrial conglomerate led by Mitsubishi Bank, sought a way of increasing its exports. A deal was agreed with the Malaysian regime, setting up a new company - Proton, the acronym for "National Automobile Industry Ltd" in Malay. The Malaysian state was to own 70% of Proton's shares - mostly financed through a large loan by Mitsubishi Bank - while Mitsubishi Motors would own the remaining 30% in exchange for building the plant and providing its management. Proton would then hire the services of its Japanese "ally" to provide the required design and technological skills. At the same time, high tariffs on imported cars were to ensure that Proton would become the best value for money in the small Malaysian market. To all intents and purposes, the Proton cars were therefore Mitsubishi products, down to their last bolt.

There is an endless list of such "strategic alliances" as these unequal ties are usually called - for example, in the case of the powerful Korean "chaebols", the massive conglomerates which make up the backbone of Korea's industry, Hyundai Motors with Mitsubishi, Kia Motors with Mazda, Goldstar Electronics with Hitachi, Hyundai Electronics with Fujitsu, Samsung with JVC and Matsushita, etc..

By the early 1990s, whether it be in the automotive industry, electronics, electrical engineering, shipbuilding, etc.., almost every large company in the region operated on a similar basis. The ties between the senior Japanese partner and the junior south east Asian manufacturers are not always as crude as in the case of Proton. But they always result in a repackaging of Japanese products, or technology, under local labels, usually backed directly or indirectly by large Japanese loans. In this division of labour Japanese industry provides the machinery and generally all the highly profitable sophisticated components, while the south east Asian economy provides the hands, the cheap industrial locations, extensive tax breaks, the low-tech components (although they are often produced by local Japanese subsidiaries) and.. non-Japanese brand names.

With respect to the American market, the trick was crude, but effective. Under Korean, Taiwanese or Malaysian labels, more Japanese goods found their way into the US market. Not that the US authorities were fooled by this, of course, but in so far as their "great power" policy still required the unconditional loyalty of the south east Asian governments, they were prepared to turn a blind eye, up to a point at least. Doing otherwise would have been difficult, anyway, when major US companies, like Motorola, Intel, General Motors or Ford, were increasingly using similar tricks, this time aimed at the Japanese market, and others used Japanese-related south east Asian subcontractors.

South east Asia caught in the US-Japan trade war

In the end, primarily due to the pressure of its trade war with its US rival, Japanese imperialism has therefore developed the economic backyard that its own domestic market failed to provide, in south east Asia, thereby resolving, temporarily at least and within certain limits, the historical problems that it had faced since the beginning of the century.

This reshaping of south east Asia, on the other hand, is not, and has never been, the "miracle" so often hailed by the western media (although, admittedly, the same media seems to have lost its fervour for "miracles" over the past few months!). Kuala Lumpur's Petronas Twin Towers may rise a few feet higher than any other skyscraper in the world, but the standard of living in south east Asia remains miles below that of the industrialised world. Beneath the flamboyant wealth of a tiny minority of privileged and the gloss of costly developments financed on public funds or borrowed money for the benefit of real estate speculators and imperialist construction giants, the south east Asian countries remain the poor relatives in the regional order engineered by the Japanese bourgeoisie.

With their reorganisation of production across south east Asia, the Japanese conglomerates have reduced Japan's contentious trade surplus with the USA. But they have only displaced the problem withouth resolving it. First, because Japan's trade surplus with the USA has resumed its growth and threatens to go beyond the limit of 2.5% of Japan's GDP set by the US authorities - which means that if this trend continues, Japan may well face another round of US sanctions. Second, because south east Asia itself is now accruing a trade surplus with the USA, which has already triggered protective measures on the part of the US. One of the most recent is the American plan to force countries such as Taiwan and Korea to buy a larger share of its agricultural surplus. Small farmers in Korea and Taiwan would then face bankruptcy, so that Japan's real trade surplus with the USA can continue to increase!

Not only is south east Asia forced to absorb part of the US retaliations against Japan's exports, it also has to absorb some of the shocks between the yen and the dollar. Since, from the point of view of Japanese imperialism, the main target of south east Asian productive activity is the American market, the regions' currencies have all been pegged to the dollar in an attempt to avoid their exports to the USA being affected by the ups and downs of the US currency. But the regional economy is in reality primarily dependent on Japan, through its debt on the one hand, and through its large trade deficit with Japan. As a result any imbalance between the dollar and the yen can only spell havoc for the region.

Thus, by forcing the region's countries to keep their currencies at an artificially high level against the yen, the two-year fall of the yen against the dollar, between 1995 and 1997, has probably played a role, among other factors, in last year's currency collapse.

So while the region's working classes never saw much of the huge profits they produced for the imperialist bourgeoisies, they are first in line to foot the bill for the economic problems of the Japanese Big Brother as well as for the USA's wrath against its Japanese rival.

In other words, just as south east Asia acts as a Trojan horse and springboard for Japan's access to the US market, it also acts as a buffer to protect Japanese imperialism from the ripples, or the storms, generated by the world market in general and Japan's trade rivalry with the USA in particular.

Time and again, these ripples have spelt disaster for the region, caught as it was between the two rival imperialisms. And in many respects, this is once again what seems to be happening today.

The origins of Japan's banking crisis

Chronologically, it would seem that, on the contrary, it is the south east Asian monetary crisis which has eventually contaminated Japan. By threatening to default on its loans from Japanese banks, south east Asia appears to have seriously shaken Japan's banking system. Such is, in any case, the common explanation which could be found in western papers.

However, the same papers added immediately that were it not for the dire state of the Japanese banking system, the impact of the south east Asian debt crisis would have been easily absorbed. Indeed, this is a simple matter of arithmetic. Japanese banks may hold 46% of south east Asia's debt, but all counted this debt represents only about 1.6% of the total debt they are owed.

The real problem, according to economic commentators, is the backlog of domestic "bad debts" (i.e. producing no interest and irrecoverable) which has been crippling the Japanese banking system for a number of years. This backlog represents officially around 6% of the total loans held by Japan's banks. But, as the collapse of Yamaichi Securities and a few other financial institutions have shown, this official figure is probably the tip of a larger iceberg of "bad debts" hidden illegally.

Therefore, explain these commentators, the south east Asian crisis has only been the trigger, rather than the cause, of a banking crisis which had been waiting to happen for quite some time. This explanation seems all the more credible as the first large bank collapse of 1997, that of Sanyo Securities, Japan's seventh largest brokerage bank, actually took place before the south east Asian currency crash. And even before the first signs of a stock market crash in south east Asia occured, back in last September, the large Japanese business banks were already so paralysed by their debts that, for many years, the biggest players on the Tokyo stock market were two American banks.

But where did this mountain of "bad debts" held by the Japanese banks come from?

In fact their origin goes back to the stock market and real estate crash which took place in Japan, in 1990. But the conditions which created the speculative bubble leading to this crash have to be traced even further back, to the currency disorders generated by the American debt and the "Plaza agreement" passed by the five main industrial powers in 1985.

Since the early 1970s, world finances have been constantly affected by the requirements of the enormous and growing debt accrued by the USA. To finance both the servicing of this debt and the permanent budget deficit of their state, the American leaders resorted to monetary manipulations, tinkering with the dollar's interest and exchange rates against the pressures of the market - proof, once again, that US imperialism only sticks to its "free market" gospel when it works to its advantage!

In so doing, however, the US leaders were treading a narrow path between the conflicting requirements of financing their deficit, boosting their exports, encouraging their domestic investment and consumption and protecting their domestic industry against its competitors. Hence the frequent "re-adjustments", which, each time, by creating an imbalance elsewhere in the world, exported the US economy's problems to the rest of the world.

To ensure that these fiddles would hold, the US leaders had to blackmail their lesser imperialist rivals into cooperating with them, using their world political and economic domination. Although it must be said that if the other imperialisms went along, albeit reluctantly, with US desires, it was primarily because they also had something to gain out of it for their own bourgeoisies - access for their goods to the US market, in particular.

The "Plaza agreement" of 1985 was one such "re-adjustment" aimed at reducing the over-valuation of the dollar which was threatening to choke the US economy. Japan, in particular, had to agree to re-evaluate the yen against the dollar. And within 12 months, the yen's value against the dollar increased by 50%.

In Japan, this was a major blow for exports. To avoid the risk of a recession, the Japanese government took a number of measures, including a vast programme of state-funded public works, reduced interest rates to a low 2.5% and introduced tax cuts for the middle and high incomes. These measures resulted in a sharp boost to the entire economy, thanks to an increased domestic demand and cheap credit. But they also created the conditions which were soon to produce a huge financial bubble.

The public works programme triggered a rise in real estate prices, while financial institutions, in search of better returns than those provided by lending, shifted to real estate and stock market speculation. The availability of cheap money due to low interest rates encouraged speculators to gamble for increasingly high stakes. The Japanese banks got involved in direct speculation, while lending enormous sums to speculators and real estate developers both in Japan and abroad, particularly in prestige business developments in California and London.

By the end of 1989, share prices on the Tokyo stock market reached a historical peak, at nearly three times their present value in yen. Meanwhile real estate prices were reaching ridiculous values: in 1989, it was calculated that the total paper value of Tokyo's housing and business properties reached the equivalent of four times that of the entire USA!

Eventually, the bubble burst. The Tokyo stock exchange crashed on 2nd April 1990 and, over the next fourteen months, share prices fell by 65% before returning to half their pre-crash level. The real estate bubble burst simultaneously. Property prices went on falling for over four years, and were more or less halved by the end of that period. Japanese banks were left with a huge amount of irrecoverable debts, due to the combination of property developers going bust at home and abroad and stock market speculators defaulting on their debts. And the Japanese economy slid into recession. In 1995, several banks collapsed under the weight of their debts, prompting the government to bail out the most threatened financial institutions the following year. But even after this massive injection of public funds, estimates of the Japanese banks' total "bad debts" still varied between $350bn and $900bn at the end of 1996.

Thus the Japanese banks' burden of bad debts and the string of bank failures which took place before and after the south east Asian crisis began.

But, while the financial crisis in south east Asia can hardly be seen as the cause of the Japanese banks' problems, it has probably to a large extent the same origin. Indeed, after the 1990 crash in Japan, the speculative capital which withdrew massively from the Tokyo stock market, sought new horizons, but a significant part remained within the Japanese sphere of influence, in south east Asia, precisely. It was this massive increase in the flow of floating capital into the region from 1990 onwards which initially kickstarted the growth of the south east Asian financial bubble which finally burst last year.

In Britain, this speculative fever produced the general fad for the so-called "Asian emerging markets", which, said the media, fed on the "industrial explosion" of the "Asian tigers". Politicians explained that all that was needed for the British lion to start roaring again, was to paint a few stripes on its depleted flanks - that is, obliterate the remaining labour regulations and welfare provisions, so as to remove the last obstacles to "labour flexibility". And Blair's spin doctors decided that his election trail should include a high-profile visit to Singapore.

However, as the current financial crisis showed, what really fed these "emerging markets" was, just as in Japan in the late 1980s, frantic real estate and stock market speculation, largely financed by short-term bank credit. Instead of "emerging" into a future of prosperity and affluence, south east Asia has now been whipped back into a poverty trap by the tail of Japan's 1990 financial crash.

The threat of a general financial collapse

Since the financial crisis began in south east Asia, the international financial authorities, that is primarily US imperialism, have been using the opportunity to blackmail the troubled countries into conceding more financial and trade "liberalisation" in exchange for emergency loans. And it looks like even South Korea, which had so far resisted this kind of pressure relatively successfully, will have to give in to avoid dire bankruptcy.

The populations of south east Asia will foot the bill of this crisis through drastically reduced purchasing power due to the fall in value their national currencies, massive unemployment due to the closure of factories driven to bankruptcy for lack of credit to import expensive parts and machinery, and increased exploitation by capitalists who are now desperate to compensate for the loss of the past speculative boon. But that is not all. They now also stand to lose what little protection they still had against the looting of imperialist conglomerates.

Japan, too, has now become the target of the US-sponsored champions of "liberalisation". Of course, it is not as easy to blackmail Japanese imperialism into making concessions. The IMF's repeated demands that Japan should open up its economy by rolling back the existing maze of state bodies and regulations which protect the interests of the large Japanese conglomerates, seem to be lacking in conviction. All the more so as, in the same breath, the IMF and US government officials are urging the Japanese government to intervene urgently by bailing out the banking system, to put an end once and for all to its "bad debt" problem, and to inject massive amounts of public funds into the economy to boost domestic consumption. What is it they want - more state or less state?

These contradictory demands only reflect the contradictory needs of imperialism. But at the moment it is probably the second demand, that the Japanese state should sort out the current crisis, which is at the top of the US agenda.

Beyond the banking crisis, the Japanese economy is already in recession. In December, the government released figures showing that car sales in Japan had reached their lowest point since 1973, housing investment had gone down and the country's GDP had fallen by 1.4% in the six months to September. A week later the OECD monthly economic bulletin predicted a 20% fall of Japan's output for the coming two years. Should the banking crisis deepen in this context, thereby imposing a drastic credit shortage on the economy as a whole, this could indeed lead to a real meltdown.

This is what the US authorities are most worried about. No doubt they remember the aftermath of the 1990 crash in Japan, when massive amounts of Japanese capital threatened to withdraw from the USA, in order to cover losses at home. As it turned out, this outflow was short-lived and passed without causing too much damage. But who can say what would happen today, when the world stock markets, and particularly Wall Street, are hugely inflated and probably much more reactive after last October's turmoil?

Besides, the US leaders have got other worries concerning their own debt. Indeed, the Japanese government holds in its currency reserves something like 25% of the $1,200bn worth of US Treasury bonds which are held outside the USA, the largest amount held by any single country. What would happen if, in case of a meltdown, or even to put pressure on the US government, the Japanese government decided to sell a large chunk of these bonds? This would spread havoc in the world currency market. At best it would trigger a catastrophic run against the dollar, at worst it could trigger a real panic on the financial markets worldwide.

Such considerations may not be as academic as they may sound. On 23 June last year, just after the end of the G7 summit in Denver, Japan's prime minister Hashimoto Ryutaro told a press conference that Japan had sometimes felt tempted to sell US Treasury bonds, and buy gold instead, particularly during the 1994 crisis with the US over car trade and on occasions when the US showed no concern for the impact of their interest rate and monetary fiddles. Admittedly this was said half jokingly. Yet, despite a press statement released immediately by the Japanese finance ministry, reiterating Japan's commitment to cooperate with the US in maintaining stable foreign-exchange markets, the Wall Street share index lost 192 points on that day - then the second largest one-day fall since the 1987 crash! This was taken so seriously by the US authorities that two days later, Robert Rubin, the US Treasury Secretary, held a press conference to state that US markets would be able to absorb even a concerted effort to sell US Treasury bonds.

Paradoxical as this may seem, the stability of the world monetary system rests on a balance of financial terrorism between the world's two strongest imperialisms. Not only would the sale of the US Treasury bonds held by Japan undoubtedly spell catastrophe for the dollar, but it would trigger an even worse catastrophe for the yen. The Japanese leaders would have to be totally desperate to make such a move, because it would really mean choosing between two catastrophes. But if they were that desperate, no-one can say in advance what choice they would actually make.

Whatever the mechanisms, there is no doubt that a deepening of the present banking crisis in Japan would put the world financial system in real danger - whether it be through a monetary chain reaction of the kind feared by the US leaders, through a drastic reduction of lending worldwide, or through a stock market crash triggered by the sale of some of the massive share holdings that Japanese institutions have in the USA, and in Europe for that matter. Who knows what may provoke a financial panic today? Even a real effort by the Japanese government to put an end to its domestic banking crisis could turn into a catastrophe, by triggering a massive speculative flow of capital rushing to get its share of the fresh funds thus put on the market by the Japanese government and... provoking a crash elsewhere.

The present south east Asian crisis, however, is but one link in a long chain of crises which have affected the entire world economy for years now. The Mexican crisis, in the winter of 1994-95, was another link in the same chain. Mexico may be very far from south east Asia, yet the medicine, which was used at the time to stop the crisis from spreading further, is now hitting Asia like a sort of financial boomerang.

The bailing out of Mexico, put together by Clinton in January 1995, involved pouring billions of dollars onto the wound. Rather than curing it, this only postponed the problem, or rather shifted it elsewhere in space and time. Because the US intervention in Mexico created the belief that whatever happened, the international financial authorities would intervene to bail out the losers. Speculators, in particular the enormous mutual and pension funds which provide the bulk of the flow of speculative capital across the globe, became confident that they could pursue their frantic race for the highest possible profits, without ever worrying about the risks this could create. This confidence fed both the speculative bubble in south east Asia and then the run against the region's currencies.

Even if the present crisis is eventually brought under control, using the same "treatment" as in Mexico, again it will only postpone the threat of a worldwide storm and increase its potential momentum. And no-one knows whether the world financial market would be able to weather a storm of that nature. The so-called "freedom" of capital to circulate, so often hailed as a godsend of "globalisation", also means the freedom to wreak havoc by moving erratically in a panic. And the masses of capital which are now able to move almost instantly across the world are so large, that even a concerted effort of the major imperialist powers to stop a worldwide panic may well prove futile, short of closing down the entire international financial system!

Of course, there is no hint that we are on the eve of such a panic. But there is no way either, to say how far we may be from it. These are the real "fundamentals" of today's world imperialist system.