"Bankrupting the Enemy"

[old_pop2000]

I recently purchased Edward S. Miller's new book, "Bankrupting the Enemy: The Financial Siege of Japan before Pearl Harbor". Miller is the author of the excellent book titled: "War Plan Orange". I am nearing the half way point, about the time of the 1939 Neutrality act. This book is detailed in its explanation of financial instruments, exports, financing of sales of goods etc. It details the financial events leading up to the main event: The freezing of Japanese accounts in the US. The information concerning these dealings, transactions and action by the Fed, State department and Treasury were only been released to NARA in 1996. This is essentially new information that has never been available to the rest of the historians.

The real issue in this book is simply that the oil embargo was not the event that triggered the war. It was the freezing of Japanese dollars in bank accounts by the government that essentially, bankrupted the Japanese government. Once the war started, only the dollar was convertible. The Pound sterling, Franc and other specie were unavailable. There was no conversion of Yen into these and other world currencies. Only the US dollar was convertible. The Japanese could sell goods or gold to the US, receive dollars, then bank those dollars to buy goods to stockpile including aircraft parts, raw cotton and of course oil. The Japanese had a secret stockpile of dollars, unknown by the watchdogs in the Fed or treasury. In 1940, they discovered the stockpile. The vehicle for the freezing of the assets was a little known section 5B of the Trading with the Enemy Act. It allowed the government to freeze assets of enemies or anyone. In fact, the Banking holiday declared by Roosevelt in 1932, used that very section as its legal foundation. Once the assets or dollars in those accounts were frozen and the Japanese prevented from purchasing dollars, they were essentially bankrupted. The Yen was only usable in Japanese territories. This is the main act that triggered the war, not the embargo of oil. Without the access to the US dollars, they could not buy oil from anyone. We were assisted by the Dutch and British.

Anyway, this is not a long book, however, it is an absolute must read to put into place the last pieces of the puzzle. I understand that many of you are reluctant to enter this area of study, with regards to military history. But in all honesty, while we don't discuss politics of the wars, the financial and economic side is absolutely essential if we are to be serious about understanding the how and why of this, or any war.

[Ed Rotondaro]

I recently purchased Edward S. Miller's new book, "Bankrupting the Enemy: The Financial Siege of Japan before Pearl Harbor". Miller is the author of the excellent book titled: "War Plan Orange". I am nearing the half way point, about the time of the 1939 Neutrality act. This book is detailed in its explanation of financial instruments, exports, financing of sales of goods etc. It details the financial events leading up to the main event: The freezing of Japanese accounts in the US. The information concerning these dealings, transactions and action by the Fed, State department and Treasury were only been released to NARA in 1996. This is essentially new information that has never been available to the rest of the historians.

The real issue in this book is simply that the oil embargo was not the event that triggered the war. It was the freezing of Japanese dollars in bank accounts by the government that essentially, bankrupted the Japanese government. Once the war started, only the dollar was convertible. The Pound sterling, Franc and other specie were unavailable. There was no conversion of Yen into these and other world currencies. Only the US dollar was convertible. The Japanese could sell goods or gold to the US, receive dollars, then bank those dollars to buy goods to stockpile including aircraft parts, raw cotton and of course oil. The Japanese had a secret stockpile of dollars, unknown by the watchdogs in the Fed or treasury. In 1940, they discovered the stockpile. The vehicle for the freezing of the assets was a little known section 5B of the Trading with the Enemy Act. It allowed the government to freeze assets of enemies or anyone. In fact, the Banking holiday declared by Roosevelt in 1932, used that very section as its legal foundation. Once the assets or dollars in those accounts were frozen and the Japanese prevented from purchasing dollars, they were essentially bankrupted. The Yen was only usable in Japanese territories. This is the main act that triggered the war, not the embargo of oil. Without the access to the US dollars, they could not buy oil from anyone. We were assisted by the Dutch and British.

Anyway, this is not a long book, however, it is an absolute must read to put into place the last pieces of the puzzle. I understand that many of you are reluctant to enter this area of study, with regards to military history. But in all honesty, while we don't discuss politics of the wars, the financial and economic side is absolutely essential if we are to be serious about understanding the how and why of this, or any war.

Dennis:

Thanks for the review, the book sounds like a must read for those who want to know more about what triggered the war in the Pacific. Does the book explain why the Yen could not be converted into other currency for the purchase of goods? Was it due to the weakness of the Japanese economy? When we think of the Yen these days, we consider it to be one of the world's strongest currencies.

[old_pop2000]

Dennis:

Thanks for the review, the book sounds like a must read for those who want to know more about what triggered the war in the Pacific. Does the book explain why the Yen could not be converted into other currency for the purchase of goods? Was it due to the weakness of the Japanese economy? When we think of the Yen these days, we consider it to be one of the world's strongest currencies.

No, it was not the weakness in the economy, it was simply that when the war started, most countries stopped trading in their currency. The pound sterling became the sterling block. It could only be used and traded within the country' s like Australia, Canada. The US dollar was the only viable currency. So, the Japanese would sell gold for dollars to the US treasury, bank the dollars in Japanese banks in the US like the Yokohama Specie Bank for buying goods in the US. The Japanese had gotten off of the gold standard and had pegged the Yen to the Pound sterling. But the war obviously changed all that. It changed the whole business of international trade.

[Campy]

So the first act of the War of the Pacific was an attack on the Japanese economy, by the U.S. , with the British and Dutch acting as allies. Could be taken as a legitimate cause for Japanese to go to war with these three countries.

Frank

[Ed Rotondaro]

So the first act of the War of the Pacific was an attack on the Japanese economy, by the U.S. , with the British and Dutch acting as allies. Could be taken as a legitimate cause for Japanese to go to war with these three countries.

Frank

Campy:

That appears to be the point that Miller is trying to make. Japan was always of the opinion that they were forced into war, even though the economic acts were a form of pressure to get them to stop fighting in China.

[old_pop2000]

So the first act of the War of the Pacific was an attack on the Japanese economy, by the U.S. , with the British and Dutch acting as allies. Could be taken as a legitimate cause for Japanese to go to war with these three countries.

Frank
Absolutely not. This is not Miller's point, his point is to show that the Japanese had been planning and stockpiling war materials since 1936. Class 1 scrap, oil, molybdenium, copper, all these and more were being purchased. Aircraft parts, plans etc. The Roosevelt administration actually had been excluding the Japanese from many of the licensing requirements placed on the Axis in Europe and the export restrictions. Many in the administration were against financial restrictions until the discovery of the hidden funds in the YSBNY. The Japanese were stockpiling US dollars in a custody account at this bank, actually for the Bank of Japan which is owned by the government. It was essentially a war chest. The invasion of China in 1937, the movement into Indochina in 1940, the joining of the Axis alliance; all these aggressive acts finally forced Roosevelt to take the advise that he had to bankrupt the Japanese to stop their aggression. Before the discovery of the money, it had been calculated by Treasury and the Fed, that the Japanese would bankrupt themselves by 1939 or 1940 with the war in China. This discovery in 1940, meant they could fight, with domestic restrictions, forever. So, it was finally decided to use the financial guillotine on their economy. When you read the book, you get the sense that the Japanese were planning the eventual war, long before their invasion of China.

[Ed Rotondaro]

Absolutely not. This is not Miller's point, his point is to show that the Japanese had been planning and stockpiling war materials since 1936. Class 1 scrap, oil, molybdenium, copper, all these and more were being purchased. Aircraft parts, plans etc. The Roosevelt administration actually had been excluding the Japanese from many of the licensing requirements placed on the Axis in Europe and the export restrictions. Many in the administration were against financial restrictions until the discovery of the hidden funds in the YSBNY. The Japanese were stockpiling US dollars in a custody account at this bank, actually for the Bank of Japan which is owned by the government. It was essentially a war chest. The invasion of China in 1937, the movement into Indochina in 1940, the joining of the Axis alliance; all these aggressive acts finally forced Roosevelt to take the advise that he had to bankrupt the Japanese to stop their aggression. Before the discovery of the money, it had been calculated by Treasury and the Fed, that the Japanese would bankrupt themselves by 1939 or 1940 with the war in China. This discovery in 1940, meant they could fight, with domestic restrictions, forever. So, it was finally decided to use the financial guillotine on their economy. When you read the book, you get the sense that the Japanese were planning the eventual war, long before their invasion of China.

Dennis:

Man I gotta get this book. I can always read about the war anytime, but this is cutting edge stuff. Thanks.

[old_pop2000]

Dennis:

Man I gotta get this book. I can always read about the war anytime, but this is cutting edge stuff. Thanks.
This is my feeling. You may read something different into the conclusions, but Miller ties this stuff together and weaves a good story of how the financial actions were eventually arrived at. I believe that the story and information is important to understanding the complete story of the war.

[fred8615]

So the first act of the War of the Pacific was an attack on the Japanese economy, by the U.S. , with the British and Dutch acting as allies. Could be taken as a legitimate cause for Japanese to go to war with these three countries.
Sorry, but this still doesn't put Japan in the "right" for starting the war. The sanctions wouldn't have been imposed in the first place without their military actions in China and Indochina. So in no way can Japan claim any moral high ground.

[Ed Rotondaro]

Sorry, but this still doesn't put Japan in the "right" for starting the war. The sanctions wouldn't have been imposed in the first place without their military actions in China and Indochina. So in no way can Japan claim any moral high ground.

Fred:

Nobody is saying that Japan was in the "right of it". What is being demonstrated here is that the breaking point that was economic, not necessarily political, that pushed Japan over the edge. Discern the difference if you please. We are not talking moral high ground here, it is an illusion in warfare. Or to put it better, the moral high ground is a great place to site your artillery.;)

[Warship NWS]

Note, political history is fine.. not political debates. Stick with the political facts and reference points not opinions.

Thanks.

[old_pop2000]

Sorry, but this still doesn't put Japan in the "right" for starting the war. The sanctions wouldn't have been imposed in the first place without their military actions in China and Indochina. So in no way can Japan claim any moral high ground.
I agree, and the facts support that position. The Roosevelt Administration was not provoking the Japanese, they were simply attempting to curb or curtail their aggressive tendencies by using economic and political sanctions. We were building up our forces, true and had been since the London treaty failed. However, that was a prudent step and with the war in Europe, a necessary step. However, nothing was aimed at Japanese at provoking a conflict with Japan. Even the movement of the Pacific Fleet to Pearl Harbor had always been contemplated and that is why the large Fuel Depot, improved dry docks, extensive airfields, shore guns, dredging of the fjord's and the installation of an Air Defense network was being funded. The objection from Richardson was simply that Pearl was not ready for the fleet. He was correct. But it was hoped that this would deter the Japanese. So much for that idea.

[old_pop2000]

Note, political history is fine.. not political debates. Stick with the political facts and reference points not opinions.

Thanks.
Thanks, because a timeline of political actions and economic sanctions is appropriate and important to proper understanding the events as they unfolded. News accounts from the time, however, can illustrate the mood or tenor of the times.

[Ed Rotondaro]

Thanks, because a timeline of political actions and economic sanctions is appropriate and important to proper understanding the events as they unfolded. News accounts from the time, however, can illustrate the mood or tenor of the times.

Dennis:

It's also interesting to see the bias (intentional or not) of the media during WWII. We are not talking "politically correct" (as nonsensical as that can be at times) here. There is a degree of "My country right or wrong" on all sides of the debate.

[fred8615]

Fred:

Nobody is saying that Japan was in the "right of it". What is being demonstrated here is that the breaking point that was economic, not necessarily political, that pushed Japan over the edge. Discern the difference if you please. We are not talking moral high ground here, it is an illusion in warfare. Or to put it better, the moral high ground is a great place to site your artillery.;)
Except that Campy wrote:


Could be taken as a legitimate cause for Japanese to go to war with these three countries.
While he may have just been making a point, there are lots of people, including modern day Japanese nationalists, who do believe that Japan was "forced" to go to war with the U.S. And that just isn't true. All of the actions taken against Japan, whether political or economic, were in reaction to Japanese aggression in Asia. I simply wanted to make clear that in no way shape or form could Japan claim "legitimate causes" for going to war with the West. They had none.

[Ed Rotondaro]

Except that Campy wrote:


While he may have just been making a point, there are lots of people, including modern day Japanese nationalists, who do believe that Japan was "forced" to go to war with the U.S. And that just isn't true. All of the actions taken against Japan, whether political or economic, were in reaction to Japanese aggression in Asia. I simply wanted to make clear that in no way shape or form could Japan claim "legitimate causes" for going to war with the West. They had none.

Fred:

Japan had a very strange mindset prior to WWII. Anything that prevented her from achieving her goals was seen as a threat or an insult to the Empire. Even reasonable requests were seen as threats. When the Japanese sent their special envoys to the US in the months before Pearl Harbor they were not negotiating in good faith. They were not prepared to yield anything but could not understand why the US wouldn't meet their demands.

[Campy]

For the record, I am not an apologist for the Japanese. I was simply responding to this statement:


Once the assets or dollars in those accounts were frozen and the Japanese prevented from purchasing dollars, they were essentially bankrupted. The Yen was only usable in Japanese territories. This is the main act that triggered the war, not the embargo of oil. Without the access to the US dollars, they could not buy oil from anyone. We were assisted by the Dutch and British.


It could in fact be viewed BY THE JAPANESE as justification for war, and in fact probably was. However, as stated. these were in fact penalties for Japanese aggression. The Japanese simply chose to overlook what happened before the U.S. action.

Frank