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Easy Money: Evolution of the Global Financial system to the Great BubbleBurst by Vivek Kaul

Easy Money: Evolution of the Global Financial system to the Great BubbleBurst by Vivek Kaul

Author:Vivek Kaul [Kaul, Vivek]
Language: eng
Format: azw3
Tags: null
Publisher: HarperCollins Publishers India
Published: 2018-05-04T16:00:00+00:00


8

When a Tokyo Palace Became More Expensive than California

At the end of the First World War, seeing the state that Germany was in, Japanese leaders decided that their country needed to be self-sufficient in natural resources. This meant that they would have to establish political and economic control over large parts of Asia. The Japanese had to wage war to capture other countries in Asia. When emperors look to build empires or to wage war, printing money to finance the operation is a natural consequence of the same.

As Japan printed money to finance its military campaign, the yen rapidly lost value against other currencies. This was in the 1930s after the gold standard had collapsed. Currencies no longer had a fixed value against each other. The value of the yen depreciated very rapidly. At the beginning of the 1930s, it had been worth two to a dollar and by the end of the 1930s it had lost half its value. But the worst was yet to come.1

Japan’s need for self-sufficiency and its policy of capturing large parts of Asia forced it to become dependent on the US. By late 1930s, the US was fulfilling nearly 75 per cent of Japan’s scrap iron needs and 80 per cent of its petroleum imports. As Hitler drove through Europe, seizing control over other nations, the US decided to begin its own rearmament programme. Exports of commodities to other parts of the world were frozen so that the US could fulfil its own needs. On 18 July 1941, all Japanese assets in the US were frozen and export controls were also put into place.2

Japan responded by bombing Pearl Harbour in Hawaii on 7 December 1941 (it was 8 December 1941 in Japan) and this forced the US to enter the Second World War.

The US ended the war nearly four years later by dropping two atom bombs on the Japanese cities of Hiroshima and Nagasaki on 6 and 9 August 1945, respectively. Japan was in a bad shape economically after the end of the Second World War. The bureaucrats tried to solve the problem by printing money. But that did not help, and four years later, the price levels were nearly 300 times of what they were at the end of the second World War.3 The amount of currency in circulation had stood at 17.7 billion yen in 1944, and by 1948, this had expanded twenty times to 355.3 billion yen.4 This, in turn, led to higher inflation.

The Japanese currency had no value when it came to international transactions. Domestically, the authorities tried to impose a conversion rate of 15 yen to a dollar but that did not hold for long and had to be increased. Gradually, separate yen–dollar conversion rates started to emerge for different goods. At one point in time, they ranged from 66:1 for canned bamboo shoots to 600:1 for lacquerware.5

The American banker Joseph Dodge arrived in Japan in 1949 and fixed the value of the yen–dollar conversion rate at 360:1, that is, 360 yen to a dollar.



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