SWDnovel Chapter 223 Heavy Snowflakes
Chapter 223 Heavy Snowflakes
(Thanks to "Vigil Sparta" for the expert certification! Thanks to ":)" for the expert certification! Thanks to "hy9169" for the expert certification! Two updates today~)
(To be honest, these two chapters today were incredibly information-dense; I spent six hours just researching and organizing the data. The protagonist's plan to force a "hard landing" for the Japanese economy involves too many factors in reality and is extremely difficult to achieve. To ensure the plot's logic is as consistent as possible, and to avoid tedious piling up of professional financial terminology, I deliberated extensively, striving to find a balance between the plausibility of the deduction and the tension of the plot. I really tried my best. However, even so, due to my personal knowledge gaps, this grand-scale deduction is still very prone to oversights or lack of rigor. If you find any obvious logical flaws or errors while reading, please forgive me, and feel free to criticize and correct me in the comments section. I will carefully consider everyone's opinions and try my best to revise and improve it. Thank you all for your continued support!)
Satsuki stood quietly in front of the huge white whiteboard at the front of the strategy room.
She held the black marker in one hand, her wrist slightly raised. The pen tip scratched against the white panel, making a "shush" sound.
Soft Landing
After finishing writing, Satsuki turned around, her eyes quietly fixed on the executives on either side of the long table.
To truly subdue this group of seasoned elites, the pressure from those in power alone is meaningless.
She has always believed that totalitarian rule is neither healthy nor sustainable. Although she now possesses sufficient authority to forcefully push through the plan, she still prefers to accomplish this task when everyone's thoughts are aligned.
Therefore, she needs a rigorous economics simulation to overturn their conventional financial knowledge.
"Executive Director Endo."
Satsuki's voice was clear and crisp, her gaze fixed on the chief financial officer sitting at the head of the table on the right.
"Assuming the Ministry of Finance succeeds in bringing this runaway economic train to a smooth landing, according to traditional macroeconomic analysis, what actions will the Ministry of Finance and the Bank of Japan take next in the face of asset devaluation after the bubble bursts?"
Executive Director Endo frowned slightly and pondered for a moment.
"Young Miss".
"Even if the economic bubble bursts completely in the future and asset prices plummet, the government will never sit idly by and allow the economy to come to a complete standstill."
Endo pushed up his gold-rimmed glasses and began to speak faster.
"There is a very high probability that the Bank of Japan will lower the benchmark interest rate. In extreme cases, it may even lower the interest rate to the zero range."
"Once the cost of capital becomes low enough, market liquidity will become abundant again. Real businesses will then be able to restart their investment and expansion cycles with extremely low-interest funds. Consumer confidence will also gradually recover under loose monetary policy."
He placed his hands flat on the table and looked directly at Satsuki.
"Based on objective projections, the economy will experience a brief period of pain of two to three years at most before it can get back on track to recovery. Therefore, I believe that we have absolutely no need to risk overturning the lifeline of the country by artificially catalyzing a devastating hard landing."
The other executives in the meeting room nodded slightly, clearly agreeing with Endo's statement.
Satsuki listened quietly to Endo's answer.
She didn't directly refute this classic Keynesian theory. She turned around and raised her wrist again.
A new line of text was written in the center of the whiteboard with a black marker.
Nominal rigid debt
"Executive Director Endo, your reasoning is very rigorous." Satsuki put down her marker and turned around. "However, all your conclusions are based on a very classic microeconomic assumption—that the core motivation of a company is always 'profit maximization'."
"This theory does indeed have universal applicability in a normal economic cycle."
"As long as interest rates fall, companies will borrow money to pursue higher profits."
"But will reality develop in the way the theory suggests?"
Satsuki took half a step forward.
"Now, let's do an extreme simulation."
"Suppose a real estate company, during the bubble period, used its 10 billion yen worth of land assets to apply for a 7 billion yen mortgage loan from a bank. Its net assets were 3 billion yen. When the land myth collapsed, the asset valuation plummeted by 70%."
"At that time, the value of assets will vanish, leaving only 3 billion yen in land assets. However, the principal and interest owed by the company to the bank will remain unchanged."
Satsuki's gaze fell on Endo's eyes.
"Under such an extreme condition, what would the balance sheets of all Japanese companies look like?"
Endo's breath caught in his throat for a moment.
His brain quickly processed the drop parameter.
Assets shrank by 70%, while debt remained unchanged.
"With assets shrinking dramatically while debt remains unchanged... the company will be completely insolvent."
Endo's voice lowered.
"In the strict definition of a financial system, this is equivalent to technical bankruptcy."
He folded his hands, which were resting flat on the table, and crossed them in front of him.
"In the extreme situation where the entire industry is facing technical bankruptcy, companies will shift their core motivation in order to avoid dying in liquidation. They will abandon the pursuit of 'profit maximization'."
Endo met Satsuki's gaze.
"The first reaction of all managers will shift to 'debt minimization'." (This inference is based on the "balance sheet recession" theory formally proposed and refined by economist Koo Chao-ming; those interested can learn more about it.)
Satsuki nodded slightly.
"That's exactly right."
Even if the Bank of Japan lowers interest rates to zero, even if funding costs are given away for free, these companies mired in insolvency will absolutely not borrow even a single yen for investment and expansion.
"The only thing they do is take every penny of cash flow earned from production and use it to pay off their bank debts. They desperately try to fix that riddled-with-holes balance sheet."
Satsuki tapped the whiteboard lightly with the end of a marker.
"The debt repayment behavior of individual enterprises conforms to the self-preservation logic of 'perfect rationality' in microeconomics."
"When millions of companies across the country simultaneously stop borrowing to expand and use all their profits to repay debts, the aggregate demand of the macroeconomy will shrink dramatically in an instant."
This phenomenon is known in economics as the "fallacy of composition".
Satsuki looked at the executives on both sides of the long table.
"When businesses collectively refuse to lend to external entities, the Bank of Japan's monetary policy will become completely ineffective, and traditional Keynesian bailout tools will become useless. The entire Japanese economy will fall directly into a bottomless 'liquidity trap.'"
The air inside the strategic room gradually became thinner.
"Satsuki".
The head of the family, Shuichi Saionji, who was seated at the head of the left side, intervened in the deduction at the right time.
"I'm not an expert in economic theory, so I won't comment on your reasoning. However, I doubt the bureaucrats in Kasumigaseki would allow such a large-scale bankruptcy liquidation to happen in reality."
Xiuyi's brows furrowed slightly.
"The bureaucrats of the Ministry of Finance, the politicians of the Liberal Democratic Party, and the local construction industry that relies on government budgets... these three parties are already tightly bound together, forming an unbreakable iron triangle of interests."
"Widespread corporate bankruptcies mean that Japan's social contract of lifetime employment has been completely torn up. The wave of unemployment will directly shake the foundation of the ruling party."
"Even if it's just to maintain superficial social stability and their electoral base, the Ministry of Finance would absolutely not dare to take drastic measures against rotten companies. They cannot afford the political costs behind it."
Satsuki nodded slightly.
"Father is right. Due to considerations of social stability and the electoral base, the Ministry of Finance would never dare to liquidate all companies that are unable to repay their debts."
"So, please consider this: since the Ministry of Finance dares not allow these large corporations burdened with massive bad debts to go bankrupt, how will the bureaucrats handle these accounting holes on a micro level?"
Tokuhiro Eguchi, who was sitting next to Shuichi, immediately leaned forward.
"If that's the case..."
Tokuhiro Eguchi's breathing became somewhat heavy. Having dealt with the Ministry of Construction and various bureaucrats for many years, he was well aware of the unspoken rules of administrative operation.
"The Ministry of Finance will most likely activate Japan's traditional 'escort fleet' model. They will use administrative guidance to force large, well-funded city banks to merge with small banks on the verge of bankruptcy."
Jiang Kou's rough fingers scribbled heavily across the table.
"To facilitate such mergers, bureaucrats will drastically relax the standards for identifying bad debts. Banks will be allowed to use accounting tricks to hide astronomical losses beneath the surface..."
Endo sat upright in the leather chair and picked up where Eguchi left off.
"Then, in order to cover up non-performing assets, banks will be forced to continue to issue bridge loans to real estate developers and construction companies that are already insolvent. By borrowing new money to repay old debts, they are forcibly prolonging their lives."
He looked at the whiteboard in front of him and spoke slowly.
"They'll try to buy time. They'll try to suppress the abscess and wait for a land price rebound that will never come."
Satsuki listened quietly to their deductions.
She took a marker and drew a black arrow on the right side of the whiteboard to represent the flow of funds.
The tip of the arrow represents an infinite loop.
"That's exactly right."
"In order to maintain so-called social stability and political dignity, the Ministry of Finance is forcing banks to continue to provide financial support to companies that should have been eliminated by the market long ago."
"Those companies that received life-saving loans were completely incapable of any substantial production or innovation. Their only role was to consume precious credit funds to pay off the interest on old debts."
"These companies, which drain the nation's resources and produce absolutely no value, will run rampant across Japan's economic landscape. Economics defines them as—"
Write four words on the whiteboard with a marker.
[Zombie Company]