This footage of the WTC 7 and North Tower collapse recently appeared on YouTube. Note the vertical column of windows blown out just before the collapse on WTC 7. As one commenter noted, the camera man was involved. He knew exactly where to focus and film.
Many media outlets have misfired about guns. Countless newspapers and television networks -- from CBS to MSNBC -- have misreported that conservative protesters are threatening President Obama with guns at public events. It hasn't happened.
In Portsmouth, N.H., a man carrying a gun, William Kostric, joined an Aug. 11 health care protest. This was blocks away and hours before Mr. Obama's town-hall meeting in that city. Mr. Kostric was given permission to be on church property where the protest occurred and was not at the place the president visited. What most of the coverage left out was that Mr. Kostric didn't carry his gun only for the protest; he legally carries a gun with him all the time for protection.
While the media regularly used terms such as "hotheads" to mischaracterize the situation, the coverage ignored that union members who opposed the protest had attacked Mr. Kostric and a friend, kicking, pushing and spitting on them. Despite violence against him by Mr. Obama's supporters, Mr. Kostric did not draw his gun or threaten anyone.
On the CBS Evening News, Katie Couric asked, "Are we really still debating health care when a man brings a handgun to a church where the president is speaking?" Deliberately or not, she got the facts wrong. As we know, Mr. Kostric did bring a gun to the church, but the president was not there and never was scheduled to speak there. Mr. Obama spoke at a separate event at a local high school at a different time. Not letting facts get in the way of her hysterical story line, Ms. Couric linked Mr. Kostric's gun to "fear and frankly ignorance drown[ing] out the serious debate that needs to take place about an issue that affects the lives of millions of people."
In another case in Arizona, a black man staged an event with a local radio host and carried a semiautomatic rifle a few blocks away from another Obama town-hall meeting. According to the radio station, the staged event was "partially motivated to do so because of the controversy surrounding William Kostric." This occurrence was not an example of an outraged gun-toting Obama protester, but a stunt to garner attention for a shock jock. Of course, this inconvenient truth was ignored by most news outlets.
MSNBC misrepresented the facts to try to back up a bogus claim about racism being behind opposition to Mr. Obama's agenda. On Donny Deutsch's Aug. 18 show about the Arizona town-hall meeting, the producers aired a clip of the anonymous black man carrying the so-called assault rifle -- but the network edited the tape so the man's race was obscured. Truth be damned, MSNBC anchor Contessa Brewer said, "There are questions whether this has a racial overtone. I mean, here you have a man of color in the presidency and white people showing up with guns strapped to their waists." Another commentator on the same show worried about the "anger about a black person being president." The supposed result: "You know we see these hate groups rising up."
MSNBC's irresponsible behavior is more than just bad journalism; it sows distrust between races. Ernest Hancock, the radio host who staged the event, was hoping to get some free publicity for himself and his show. Whatever one thinks of this PR stunt, it had nothing to do with race. MSNBC misrepresented a black man carrying a gun as a white man to invent a racial dynamic that didn't exist.
Media disinformation about guns is a sad sign of the drastic action liberals will take to undermine support for gun rights for law-abiding citizens. It's also an indication of liberals' extreme desperation as Mr. Obama's agenda unravels.
Sirs: This is in response to the entry posted on your American Monetary Institute blog on August 16, 2009, which references my articles on a state-owned bank solution to the credit crisis. I was disappointed to read that you thought my proposal was “an insult to humanity,” as the idea was actually drawn from the AMI’s book The Lost Science of Money. I do quite a bit of writing and speaking, and I always follow your lead in saying the ideal monetary model is that established in Benjamin Franklin’s colony of Pennsylvania, which not only spent but lent money into the economy, through its own publicly-owned bank. The Lost Science of Money calls it “Pennsylvania’s Superior Money System.” On pages 370-71, your book quotes Pennsylvania Governor William Keith, who wrote of the province’s founding of a publicly-owned bank:
“It is inconceivable to think what a prodigious good effect immediately ensued on all the affairs of that province . . . . The poor middling people who had any lands or houses to pledge, borrowed from the loan office, and paid off their usurious creditors. The few rich men who had before this [quit] the trade – except that of usury – were obliged to build ships, and launch out again into trade.”
It is submitted that our proposals aim for the same thing – reclaiming the money power for the people themselves. We would just get there by different routes. My public bank would create credit on its books, lend it, and charge interest on it. You would have a public entity create money and lend it to private banks at interest, which would then lend it to consumers and businesses at interest. The private banks in your scheme would no doubt tack their interest costs onto the interest charged to the end borrowers, since banks are in the business of making a profit, and that is the only way they could make a profit in your system. My proposal would just eliminate the profits to the private banker middlemen. Banking would become a non-profit public service, with the interest returned to the public purse.
You maintain that publicly-owned banks are “mainly a distraction from genuine reform of the system, as encapsulated in the proposed American Monetary Act.” Indeed, much in that Act is excellent; but it would leave the determination of how much credit is available in the economy to a central planning board, when the money supply needs to be flexible, expanding and contracting organically in response to the needs of trade. The American Monetary Act gives the final word on the money supply to the Secretary of the Treasury, under the guidance of an independent monetary board. Today, that would be Timothy Geithner. Trusting Timothy Geithner to determine the day to day credit needs of the country would be the equivalent of trusting the Russian Soviet to accurately determine how many size 9 shoes its population needed. When the pot of available funds decreed by the Treasurer ran out, creditworthy borrowers would be turned away, and the economy would falter.
Ready credit is what makes an economy run smoothly, and its availability should not be subject to the whims of a political body. Credit-money is created when creditworthy borrowers take out loans. Banks merely “monetize” the borrowers’ promise to repay. As The Lost Science of Money makes clear, “money” is not a commodity but is created by legal agreement. Credit-money is created when the “full faith and credit” of the community is advanced to the borrower. The function of the banker is just to oversee the agreement, acting as the middleman who advances the funds and collects them back. Publicly-owned banks are the most efficient and cost-effective way to get ready credit into the economy. They are not a temporary stopgap measure, any more than the land bank of the colony of Pennsylvania was.
You have divided your objections to state-owned banks into two groups, “moral” and “technical,” with separate numbering for each. I will follow your numbering in addressing these points.
Moral Objections
1. You state that for a public bank to engage in “fractional reserve” lending – that is, to create credit on its books – is immoral. That appears to me to be a mischaracterization of the problem. What is immoral is the private creation of money. Both our proposals are attempting to overcome that flaw. I am just suggesting that publicly-owned banks are the most direct and practical means to that end. Congress is now owned by Wall Street, as Congressmen themselves are complaining. States, on the other hand, still have some autonomy.
2. You state that banks cannot create credit on their books but can make loans only against 90-95% of their deposits. This is no longer true. Federal Reserve data establishes that the reserve requirement is now essentially obsolete. For a detailed discussion, see Jake Towne, “Yes, Virginia, There Are No Reserve Requirements (Part 2),” August 12, 2009, establishing that “reserve requirements are effectively not in existence and easily avoided by accounting tricks in the U.S. banking system.” See also Eric deCarbonnel, “US Banks Operating Without Reserve Requirements” (March 29, 2009), stating, “Although, under current regulations, all depository institutions are required to maintain reserves against transaction (checking) deposits, the reality is they don’t.” Both articles are supported with Federal Reserve data.
What limits bank lending today is chiefly the capital requirement, and states are in a far better position to meet that requirement than private banks are. Banks must have Tier 1 capital equal to 4% of loans and other risk-weighted assets, and they must have combined Tier 1 plus Tier 2 capital of 8% of risk-weighted assets. Tier 2 capital includes several things, but the most interesting here is the appreciated value of unencumbered real assets. For a private bank, that typically means only the building that houses it; but a state has buildings, prisons, parks, etc. peppered all over the state. It has a HUGE asset base, so it basically does not have to worry about Tier 2 capital at all.
That just leaves Tier 1 capital, which is essentially the bank’s own money. For a private bank, that generally means the capital contributed by shareholders and the interest earned on loans. Again, a state has a huge amount of money of its own. A friendly regulator could count the state’s whole revenue base as Tier 1 capital. But let’s say that the state wants to dot all the i’s and cross all the t’s by actually setting aside enough Tier 1 capital to please the regulators. At 4%, $1 billion would be enough to create $25 billion in credit – virtually enough to meet California’s $26 billion budget deficit in one fell swoop. You say that this would just be a loan, which has to be paid back; but that is not necessarily the case. The state owns the bank, so it can roll the loan over as long as needed; and the interest returns to its own coffers, so the loan is essentially interest-free. The federal government has been rolling over its debt since the days of Andrew Jackson. For a state to create interest-free money on its books and roll the loans over indefinitely produces the same result you wish to achieve – an interest-free government-issued money supply. In both our schemes, the government gets the money interest-free, while private borrowers get it with an interest charge attached.
You say that only the federal government, not the states, can create money under the Constitution; but this is not true. The Constitution forbids states only to issue “bills of credit,” which has been interpreted to mean paper money. U.S. Supreme Court case law holds that a state can own a bank, and that the banknotes issued by the bank are not the sorts of “bills of credit” forbidden to the states by the Constitution. Banks no longer issue banknotes, but the principle still holds: bank-created money is not forbidden to governments any more than to private banks. We know that private banks create money. In fact, they create virtually all of our money. The ownership of the bank will not affect the bank’s ability to create credit on its books. Rather, it will just achieve our mutually desired end of transferring the power to create money from private to public control.
3. “The problem is being misidentified as interest,” you maintain, “when the problem is debt.” You argue that all money could be created interest-free by the government, just as coins are today; and that this would save the taxpayers money. I totally agree with that: Congress should issue money outright. That was the model followed in the colony of Pennsylvania, which we agree was the ideal model. Congress should create not just coins but paper dollar bills and accounting entry money. But that is a completely different issue from consumer credit or debt. You are not proposing to eliminate banks that charge interest to borrowers; you would just tack an extra interest charge on by making banks borrow from the government as the ultimate creator of credit. Under my proposed system, as in yours, the government would be the ultimate issuer of credit; but with a bank that was state-owned, the extra interest drawn off by private banker middlemen would be eliminated.
Technical Objections
1. You state that “no bank’s an island . . . If the other banks aren’t lending, a State-run bank wouldn’t be able to lend either.” Today, the other banks are not lending because they are not able to meet the capital requirement for additional loans; and this is because the “shadow lenders” have disappeared – the investors who were taking loans off their books, making room for more loans. A state-owned bank would have huge capital and deposit bases and a clean set of books, and therefore would have a huge capacity for lending as and where needed. It would not be dependent on other banks to meet its reserve requirement, which as noted above is now essentially obsolete.
2. You caution about following the model of the Bank of North Dakota, which you warn is playing with fire because it is not FDIC insured and could be subject to a bank run. In fact, the FDIC is now broke – literally. Its own funds offer little if any protection. In a few months it will have to start borrowing from the government. If the banks were owned by the government in the first place, this problem would have been obviated.
3. You say that a state bank would take deposits away from other banks, reducing the lending ability of those banks. However, the overall credit capacity of the system would not be reduced; the business would just move to the state-owned bank, as well it should if the latter can provide superior service at cheaper rates. The State of California has $17.6 billion in demand deposits and NOW deposits, which could be moved at will; and most of the banks it has them at actually turned down California’s request to honor its IOUs. Some of those banks got taxpayer bailout money specifically to keep credit flowing to the states and consumers, an obligation they have clearly failed to fulfill. California owes them nothing and has every right to remove its deposits from those banks into its own. That is free-market capitalism. More than that, it is a matter of survival. Why should we be feeding parasitic out-of-state banks that aren’t helping us in return? The Bank of North Dakota was set up in exactly those circumstances: the farmers were losing their farms to the Wall Street bankers, so they set up their own credit system to escape the Wall Street maelstrom — and it worked, brilliantly well.
4. You state that the meager benefits of forming a state-owned bank would not be worth the costs. However, you are looking at a very limited range of benefits. Let’s consider again California. With its enormous capital base, California could generate enormous amounts of credit, which could be used to refinance its existing debt; and since the state would own the bank, it would pocket the interest. California pays $5 billion yearly in interest alone — as much as some states’ whole budgets. Just that savings would make a state-owned bank worth the trouble; but a state-owned bank could serve more purposes than that. It could eliminate the cost of borrowing for income-generating projects such as infrastructure, low-cost housing, and alternative energy development. On average, interest has been calculated to compose 50% of the cost of every project. Moreover, the state wouldn’t have to scramble around looking for a loan when it needed one, knuckling under to inflated interest rates. On the question of costs, today a bank can be set up on the Internet, without even the cost of a physical building.
5. You suggest that negotiating better terms with existing banks would be more cost-effective than setting up a new bank. Again, you are overestimating the costs and underestimating the potential benefits of a state-owned bank.
6. You write, “We citizens have only so much energy and time to devote to changing our world for the better. Diverting good people into nonsense condemns us to continue suffering unnecessarily. This time of crisis must be used for real reform, not diversions.” I agree with that. The economy is in an emergency state. We cannot afford to wait for a Congress that has been captured by the same private money-creating monopoly from which we are trying to free ourselves.
Your plan represents a far more radical diversion from the status quo than mine and is therefore a harder sell to make to basically clueless politicians. A state-owned bank has already been operating very successfully for 90 years in one pioneer state, and following that model would require doing nothing different from what banks do now. How can regulators object, when we’ll be satisfying all their requirements? In fact, the shift will seem so minor that its significance is liable to be missed. Even committed monetary reformers like yourselves have apparently missed its implications and potential. Through state-owned banks that create money on their books, we can achieve what Benjamin Franklin, Thomas Jefferson, Abraham Lincoln and William Jennings Bryan all aimed to achieve: a publicly-created money supply issued by the people for the people.
Last week I had dinner with two friends, one of whom is what the mainstream would call a conspiracy nut. Over the course of a couple of hours and a bunch of margaritas he walked us through everything from the government's role in 9/11 to the FEMA internment camps to the surge in gun regulations, all of which are scary, but also mostly beyond my experience. I'm a finance guy who gets the monetary side of what's coming, but I don't own guns (yet) and have no first-hand knowledge of 9/11 or FEMA camps. So - while some or all of these things might be true - it was still a bit academic.
Then we got to something I could relate to: Apparently the U.S. is getting ready to require every citizen who owns even a single backyard chicken to register their livestock and implant them with a microchip that will allow both identification and tracking. The chicken (or goat or pig) owner will be required to notify the government when the animal is moved, say to the county fair 4-H barn. And when the animal dies the owner will have to fill out a form and submit it to the authorities within 24 hours. AND the owner will be required to register visitors to their property, whether they come into contact with the livestock or not.
This sounded too ridiculous to be real. The other conspiracies at least have plausible, if dark, rationales, like setting us up for a war, containing troublesome mobs of unemployed private sector workers, or putting gun owners under the thumb of the ATF. But why would a would-be dictator care about the neighbor's chickens?
So I googled NAIS, for National Animal Identification System, and discovered that it is indeed real, has been around for a while, and calls for pretty much everything mentioned above, though initially on a voluntary basis. See this 2005 article by Justin & Franklin Sanders of the The Money Changer newsletter.
NAIS' stated purpose - to be able to track animals back to their source in case of a disease outbreak - is something the USDA would obviously like to have, in the same way that the FBI would love to be able to monitor all telephone calls and emails without a warrant. But the downside of handing this kind of power to the government is so huge and so obvious that anybody with a sense of history has to suspect that the public rationale for NAIS is a smokescreen for some darker motive, of which several possibilities come to mind.
First, the per-animal cost of the chips and the paperwork (not to mention the loss of privacy) goes up exponentially as the number of animals per square meter goes down. So motive number one is clearly to enable big factory farmers and chip makers to squeeze fast-growing local farmers by raising their costs. NAIS will also make it harder for individuals to raise chickens for eggs or cows for milk, making consumers more reliant on the ag/industrial complex.
Meanwhile, people who keep animals and buy local produce also frequently own guns, and by and large would like to be left alone to pursue their own interests. Many of them own gold because they don't trust the government to protect their dollar savings. This is clearly a dangerously subversive subculture, and knowing where they are would be very helpful in case of a, ahem, public health crisis.
There's also the monetary angle. As Catherine Austin Fitts, whose Solari Network is doing great work in fields like financial freedom and sustainable communities, puts it:
"Oil is not sufficient to provide the backing for a global virtual currency. For that you need to control food; which means corporate ownership and control of seed and food production and distribution. NAIS is designed to help facilitate the roll up of control in the United States in the most economic manner."
And here's Ron Paul's take:
Stop the NAIS
In typical Washington-speak, NAIS is "voluntary" - provided USDA bureaucrats are satisfied with the level of cooperation. Trust me, NAIS will be mandatory within a few years. When was the last time a new federal program did not expand once implemented?
As usual, Congress is spending millions of dollars creating a complex non-solution to a very simple problem. NAIS will cost taxpayers at least $33 million for starters.
Agribusiness giants support NAIS, because they want the federal government to create a livestock database and provide free industry data. But small and independent livestock owners face a costly mandate if NAIS becomes law.
Larger livestock operations will be able to tag whole groups of animals with one ID device. Smaller ranchers and farmers, however, will be forced to tag each individual animal, at a cost of anywhere from $3 to $20 per head. And NAIS applies to anyone with a single horse, pig, chicken, or goat in the backyard - no exceptions. NAIS applies to children in 4-H or FFA. Once NAIS becomes mandatory, any failure to report and tag an animal subjects the owner to $1,000 per day fines.
NAIS also forces livestock owners to comply with new paperwork and monitoring regulations. These farmers and ranchers literally will be paying for an assault on their property and privacy rights, as NAIS empowers federal agents to enter and seize property without a warrant - a blatant violation of the 4th amendment.
NAIS is not about preventing mad cow or other diseases. States already have animal identification systems in place, and virtually all stockyards issue health certificates. Since most contamination happens after animals have been sold, tracing them back to the farm or ranch that sold them won't help find the sources of disease.
More than anything, NAIS places our family farmers and ranchers at an economic disadvantage against agribusiness and overseas competition. As dairy farmer and rancher Bob Parker stated, NAIS is "too intrusive, too costly, and will be devastating to small farmers and ranchers."
NAIS means more government, more regulations, more fees, more federal spending, less privacy, and diminished property rights. It's exactly the kind of federal program every conservative, civil libertarian, animal lover, businessman, farmer, and rancher should oppose. The House has already acted, but there's still time to tell the Senate to dump NAIS. Please call your Senators and tell them you oppose spending even one dime on the NAIS program in the 2007 agriculture appropriations bill.
Dr. Ron Paul is a Republican member of Congress from Texas.Some 200 people rallied at the State Capitol in Austin on Saturday, a small but vocal crowd that set itself in opposition to pro-health care reform protesters.
Larry Kilgore, a Christian activist that the Texas Observer says has advocated execution for homosexuals, "drew some murmurs of disapproval" when he told the crowd: “I hate that flag up there. ... I hate the United States government. … They’re an evil, corrupt government. They need to go. Sovereignty is not good enough. Secession is what we need!”
“We hate the United States!” he declared later in his address.
Although the Texas independence movement is nothing new, observers say it has been given new life by the debate over health care, which some secessionists see as an attack on the US Constitution, and therefore grounds for abandoning the Union.
But many observers place responsibility for the movement's growth in prominence on Texas Gov. Rick Perry, who in April suggested that the Obama administration's policies may drive Texas to leave the United States.
"If Washington continues to thumb their nose at the American people, you know, who knows what might come out of that," Brian Beutler at TalkingPointsMemo quoted Perry. "But Texas is a very unique place, and we're a pretty independent lot to boot."
"Rick Perry's talk of secession appears to have buoyed efforts by Texas secessionists who want the governor to follow through," Dallas Morning News reporter Wayne Slater blogged on Sunday.
Slater went on to debunk some of the assertions made by the secessionists:
Another self-styled patriot invoked George Washington as an ally of secession (History lesson: Washington presided over creation of the union) and Sam Houston - "You go ask Sam Houston what he thought about secession. He did it anyway." (History lesson: Houston opposed secession. He ran for governor as an independent Unionist in 1859. Despite his efforts, the people of Texas voted to secede, and he was forced out of office in March 1861.)
As the Texas Observer notes, no prominent Texas politicians showed up to the event, not even the 70 or so members of the state legislature who supported a declaration (PDF) earlier this year affirming the sovereignty of Texas over its own constitutional affairs.
Prior to the protest, organizer Gerry Donaldson told Robert Moon of Examiner.com that secessionists are "calling for an orderly process that will allow our federal government to fall back in line with the Constitution. ... Either we will restore America, we will live in a Marxist dictatorship, or we will secede and start over again."
"For his part, Perry says he never advocated secession - only resistance to federal programs that infringe on states' rights," the Morning News' Slater reports. "The message is part of his anti-Washington appeal to the right-wing of the Republican Party in advance of next March's GOP primary against [prominent Texas Republican] Kay Bailey Hutchison."
-- Daniel Tencer
The following video was posted to YouTube by the Texas Observer on Saturday, August 29, 2009:
Aug. 31 (Bloomberg) -- The yen strengthened after the Democratic Party of Japan won yesterday’s national election by a landslide, marking an end to single-party government that lasted almost unbroken for half a century. Japanese stocks fell.
The yen appreciated to 132.26 per euro in Tokyo from 133.85 in New York on Aug. 28, and strengthened to 92.77 per dollar from 93.60. The Nikkei 225 Stock Average fell 0.4 percent to 10,492.53 at the 3 p.m. close on the Tokyo Stock Exchange, reversing an earlier gain of 2.2 percent. Bonds rose.
“Some are saying the market has fully reflected the change of government, but the change is too big to be priced in,” said Hisakazu Amano, who helps oversee the equivalent of $18 billion at T&D Asset Management Co. “The impact of the DPJ victory on company earnings is still uncertain and investors can’t decide what to buy or sell.”
The DPJ routed the Liberal Democratic Party in yesterday’s vote, capturing 308 of 480 lower-house seats. The DPJ has pledged to revive an economy emerging from its deepest recession since World War II by boosting child-care spending, cutting taxes and limiting the power of bureaucrats.
The yen strengthened against all 16 major counterparts, gaining for a fifth day against the euro and rising to its strongest level versus the dollar since July 13. A tumble in Chinese stocks also fueled demand for the relative safety of Japan’s currency.
‘Risk Averse’
The Shanghai Composite Index slumped 5.4 percent, set for the lowest close since May 27. China is Japan’s biggest export market.
“The slide in China’s equity markets led to buying of the yen,” said Toshihiko Sakai, head of trading for foreign exchange and financial products at Mitsubishi UFJ Trust & Banking Corp. in Tokyo. “Investors are still risk averse.”
Honda Motor Co., which gets more than half its sales in North America, slid 1.8 percent. Canon Inc., the world’s biggest maker of digital cameras and which gets a third of its sales from the Americas, dived 3.3 percent. Toyota Motor Co., the world’s largest automaker, slumped 1.2 percent. Manufacturers of cars and electronics contributed the most to declines in Japan’s broader Topix index, which slipped 0.4 percent to 965.73.
The Nikkei added 1.3 percent in August for a sixth monthly increase, the longest stretch of gains since the nine months ended January 2006.
NTT, Retail Stocks
Nippon Telegraph & Telephone Corp., Japan’s biggest phone company and 34 percent owned by the government, jumped 3.2 percent, the most since Aug. 4.
The DPJ is supported by NTT’s labor union and is less likely than the Liberal Democratic Party of Japan to review the company’s status and organization, Hironobu Sawake, an analyst at JPMorgan Chase & Co., said in a report this month.
J Front Retailing Co., Japan’s No. 2 department-store operator, climbed 2.7 percent. Round One Corp., which operates bowling alleys, surged 5.2 percent after the higher sales outlook prompted Mitsubishi UFJ Financial Group Inc. to give its highest rating to the stock.
“If the DPJ’s proposed measures to bolster household income lift consumer spending, it will make an economic recovery more certain,” said Ryuta Otsuka, a strategist at Toyo Securities Co. in Tokyo.
Japan’s retail sales fell less than economists had estimated last month, a report from the Trade Ministry showed this morning. Monthly wages dropped for a 14th month in July, the Labor Ministry said today.
Boost Household Spending
The DPJ, which has pledged to boost the minimum wage, plans to eliminate unnecessary government spending and abolish some tax deductions to finance its economic aid package. DPJ leader Yukio Hatoyama said on Aug. 23 that he won’t let new bond sales for the next fiscal year exceed this year’s record.
Japanese government bonds rose, with the yield on the 1.5 percent bond due June 2019 falling half a basis point to 1.305 percent as of 3:15 p.m. in Tokyo.
The Markit iTraxx Japan index of credit-default swaps, which act as insurance against company defaults and are a measure of the perceived risk of such an event, was little changed today, BNP Paribas SA prices showed.
Nikkei futures expiring in September declined 0.8 percent to 10,450 in Osaka and fell 0.8 percent to 10,440 in Singapore.
Aug. 31 (Bloomberg) -- The Democratic Party of Japan swept to power for the first time as the nation’s voters turned their backs on half a century of single-party government that failed to reverse economic stagnation and spiraling welfare costs.
The DPJ, led by 62-year-old Yukio Hatoyama, captured a record 308 of the 480 seats in the lower house of parliament. Prime Minister Taro Aso indicated he would resign as head of the Liberal Democratic Party, which lost almost two-thirds of its lawmakers in a complete reversal of the last election in 2005.
“This is a bloodless revolution, the first transfer of power from one party to another in postwar Japan,” said Tomoaki Iwai, a political science professor at Nihon University in Tokyo. “The DPJ now faces the tough task of delivering on its promises and showing the Japanese public it can change the system.”
Hatoyama, who quit the LDP in 1993, has pledged to revive an economy emerging from its deepest recession since World War II by boosting child-care spending, cutting taxes and curtailing the power of bureaucrats. His grandfather founded the LDP in 1955 and became the first of that party’s 22 prime ministers.
“This election has been all about changing the government,” Hatoyama said in a nationally televised press conference. “Everything starts now.”
The Democrats had 112 seats before the lower house was dissolved last month. The LDP, which has governed for all but 10 months since its founding, saw its parliamentary strength fall to 119 seats from 303. Aso, 68, said his party “must start afresh” in choosing a new leader.
White House Statement
U.S. President Barack Obama “looks forward to working closely with the new Japanese prime minister on a broad range of global, regional and bilateral issues,” White House Press Secretary Robert Gibbs said in an e-mailed statement.
DPJ leaders including Hatoyama have called for a less subordinate relationship with the U.S., which keeps about 50,000 troops in Japan as part of a security alliance that has served as the focus of Japanese foreign policy since World War II.
“We are confident that the strong U.S.-Japan alliance and the close partnership between our two countries will continue to flourish,” Gibbs said in his statement.
Hatoyama’s incoming government must address record unemployment and measures to prepare for an aging, declining population. Japan has the world’s highest proportion of people over 65 years old and the lowest ratio of those under 15. Welfare outlays already make up a quarter of this year’s 88.5 trillion-yen ($945 billion) budget.
‘Sense of Frustration’
“There’s a sense of frustration and we need to change something to improve society and the economy,” said Toshiaki Kato, 42, a Tokyo company employee who voted for the DPJ. “The DPJ is the only political party that can replace the LDP.”
Japan’s economy grew an annualized 3.7 percent in the three months ended June 30, the first growth in five quarters, after an 11.7 percent decline in the first quarter of the year.
Japanese stocks and bond yields may rise on prospects the DPJ will increase spending to boost growth. Ten-year government bond yields will probably rise to 1.7 percent from 1.31 percent by year-end, while the Nikkei 225 Stock Average will advance about 14 percent to as high as 12,000, said Yuuki Sakurai, chief executive officer of Fukoku Capital Management Inc. in Tokyo.
“It’s a landslide victory for the DPJ and the equity market will remain excited for a couple of days or even a couple of weeks,” said Sakurai, who helps manage about 800 billion yen in assets.
Yen May Benefit
The yen may also benefit from the DPJ’s pledge to give the Bank of Japan more autonomy, increasing the scope for it to raise interest rates. JPMorgan Chase & Co. overnight interest- rate swaps signal a 19 percent chance borrowing costs, currently close to zero, will be lifted by the end of July.
Japan’s currency rose today, driving down stocks on concern exporters like Honda Motor Co. will get hurt. The yen gained to 92.77 per dollar from 93.60 on Aug. 28 in New York. The Nikkei fell 0.4 percent to 10,497.19 as of the 11 a.m. break.
To finance an economic aid package that would total 16.8 trillion yen in 2013, the DPJ says it will eliminate 9.1 trillion yen in unnecessary spending, tap special accounts managed by the nation’s bureaucrats and abolish some tax deductions.
“We would like the DPJ to carry out discussions that transcend party lines and produce concrete results,” Fujio Mitarai, chairman of the Keidanren, the country’s biggest business lobby, said in an e-mailed statement. “It’s vital that a way out of the economic turmoil is found.”
LDP Heavyweights Fall
LDP heavyweights fell with their party. Former Prime Minister Toshiki Kaifu, 78, lost his seat, as did former Finance Ministers Shoichi Nakagawa and Koji Omi. Kaifu, who was first elected in 1960, would be the first former premier to lose his district since 1963.
“It’s about time for change,” said Yuichi Tauchi, 25, a project manager at a truck manufacturer in Tokyo after voting for the DPJ. “People have been losing faith in the LDP, and a change in politics will hopefully bring about optimism.”
Hatoyama is a scion of Japan’s most prominent political family. In addition to grandfather Ichiro, a great-grandfather was speaker of the lower house and Hatoyama’s father was foreign minister. His younger brother, Kunio, is a senior member of the LDP, and was re-elected yesterday.
Of the 308 DPJ legislators elected yesterday, 268 are male and 40 are female.
NHK estimated voter turnout at 69 percent of Japan’s 104 million voters, which would exceed the 67.5 percent that cast ballots in the last lower house election.
