The Power of Words and of Democracy, Japan, and Sarah Palin

I remember a few years back during the Good Ol' Days we had ... a George W. Bush as president of the White House. I didn't really appreciate what people meant when they believed the United States was the country most dangerous to world security and stability at that point in time yet. (See my post America the Dangerous). By the way, just as in the post below, please send me corrections. I would hate to think that I would be propagating something untrue.

Ahh. Those were the good ol' days. The U.S. economy was booming (after a sharp, but short-lived contraction after 9-11). Well, the U.S. President at the time, George W. Bush was in Japan for a summit with then Japanese Prime Minister Koizumi (I guess those were the good ol' times for Japan too... at least on a relative basis, considering the past twenty years now).

Oh, and on a side note, for those thinking the decline of the LDP and the recent dissolution of the Diet in Japan after the humilitating defeat of the ruling LDP in recent elections in Tokyo is the start of a new multiparty democratic regime in Japan.

Think Again.

Compare how Shinjiro Koizumi (former Japanese Prime Minister Junichiro Koizumi's son has been "annointed" to succeed his father). This is straight from the Japan Times (Kim Jong Un is the son of Kim Jong Il reported to succeed his father once he returns to Mount Paekdu as the next ruler of the North Korean regime) :

"And, as Aera pointed out, the strategy for making sure Koizumi Junior gets the seat is strikingly similar to the one currently being carried out in North Korea. Even if Shinjiro is Koizumi's second son and not his third, he's 28 years old, the same age as Jong Un and Hidetada when they were picked for their jobs" ("My son, I give you power over the people" : Japan Times).

Anyways, well, when George W. Bush was in Japan, he did something amazing; he confused the word "devaluation" with "deflation." You see, Japan had been experiencing problems of falling prices -- deflation, for a very long time and it was the biggest issue in Japan at that time. So, if he were to meet the Japanese Prime Minister, it would be quite natural to talk about U.S. backing for Koizumi's strategy to flight deflation.

But, during the press conference after the summit:

"A remark by US President George W Bush about "devaluation" in Japan has caused confusion in the currency markets. The yen fell as some traders interpreted the comment as meaning the US favoured a devaluation of the Japanese currency" ("Bush gaffe hits yen" : BBC)

His exact words were:

"He [Japanese Prime Minister Junichiro Koizumi] said I want to make it very clear to you exactly what I intend to do and he talked about non-performing loans, the devaluation issue and regulatory reform and he placed equal emphasis on all three" (Feb. 18, 2002).

The problem, you see, though, is that there was no devaluation issue at the time (Where, the U.S. would tacitlty approve a Japanese policy of trying to rid deflation by the Japanese Central Bank lowering the value of the Yen versus the Dollar -- in effect, exporting Japan's economic problems, which of course, the U.S. was not in favor of).

Ironically, that is exactly what the U.S. seems to be doing. But, more on this perhaps some time in the future since I just started studying this (it's basically what the second half of the course I am taking about is: EC321: Money and Banking), so in all fairness I don't really have an informed opinion.

But, on paper though, the U.S. enjoys an Exorbitant Privilege as the U.S. enjoys the ability to issue debt in her own currency (dollars) andat lower comparative interest rates (for example, treasury bills are considered safe debt to own) so depreciation is much more beneficial to the U.S. than say it would have been for Japan (but on a personal level, I think Japan should be commended for not depreciating her currency during this time when competitors in China and particularly South Korea went through a period of protracted depreciation, either explicitly (Korea) or implicitly (Japan)).

Of course, the fact that he "misspoke" cost like I believe a sharp drop in the value of the Yen, but the fact that one wrong word by this President led to billions of losses (or gains) by investors who were taking George W. Bush's words seriously is/was a pretty scary thought -- Thank God that there is no chance of a Palin adminsitration:

"This bombshell was unexpected, and makes it highly unlikely that she will ever be president" ("The passing of Palin" : Economist)

Anyways, when I first read that I just couldn't believe it. How on Earth could this not have gotten more media coverage? No, not with respect to Sarah Palin. That's more like (How on Earth could she have gotten so much media coverage?) But, more interestingly, here's this word that when spoken recklessly and carelessly by one person it has the power to affect all those that take him/her seriously -- especially if we are speaking of billions, well trillions, of yen.