ECON Japan a danger for the U.S.: This Crisis Is 30 Times Bigger Than Greece

Japan will have a huge effect on you there in the U.S.


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This Crisis Is 30 Times Bigger Than Greece
May 20, 2013
Japan has fueled much of this latest rally in stocks, driving the marketing first with promises of money printing by the Prime Minister in November 2012, and then a massive $1.2 trillion QE program announced by the Bank of Japan last month.

The result of this has been a collapse in the Yen and a 70%+ rally in the Nikkei in the last six months.

This has been the fundamental driver of this latest risk on rally. Remember that the US Federal Reserve has begun changing its language regarding QE and has even hinted at tapering QE before the year-end. So it’s the Bank of Japan who’s in the driver’s seat for asset prices today.

If Japan has been bad for the Yen and good for stocks… it’s been an absolute disaster for Japanese bonds. Since the Bank of Japan announced its latest QE program, Japanese Government bonds have triggered circuit breaks no less than four times due to incredible volatility.

And last week, they briefly violated their multi-year trendline.



Many investors are probably looking at this chart and thinking, “who cares what happens to Japanese bonds… why does a trendline violation matter here?”

First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size.

For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally.

So if Japanese bonds begin to implode, this means that:

1) The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).

2) The second largest economy in the world will collapse (along with the impact on global exports).

Both of these are truly epic problems for the financial system. But even worse than any of them is the following

If Japan’s bond market implodes, then global Central Bank efforts to hold the system together will have proven a failure.

Japan is truly the leader amongst global Central Banks when it comes to progressive and accommodating policy. The Bank of Japan has kept interest rates at ZERO for nearly two decades. It’s also launched NINE QE plans adding up to an amount equal to nearly 25% of Japanese GDP. So far it’s managed to do this with minimal consequences.

Central Bankers around the world have monitored these efforts and believed that they can implement similar plans. So if Japan’s bond market begins to collapse, then it’s Game. Set. Match. for Central Banker policy. And what follows will make Lehman look like a joke.

Investors, take note… the financial system is sending us major warnings…

If you are not already preparing for a potential market collapse, now is the time to be doing so.

http://gainspainscapital.com/2013/05/20/3543/

Forget Cyprus, Japan Is The Real Crisis


http://www.forbes.com/sites/jamesgruber/2013/03/23/japan-is-the-real-crisis/


Forget Cyprus. A much bigger story in the coming weeks and months will be in Japan, where one of the greatest economic experiments in the modern era is about to begin. A country where government debt even dwarfs those of Europe’s crisis-ridden nations, Japan will attempt to inflate its way out of a 23-year deflationary spiral.

The overwhelming consensus among the world’s economists is that quantitative easing (QE) has saved the day in the U.S. and that Japan needs to follow suit, on a larger scale. I beg to differ and suggest this policy will almost certainly lead to a hyperinflationary disaster in Japan. If that’s right, it will have serious ramifications for other countries, dragged down by an acceleration of the so-called currency wars. More broadly though, it is likely to destroy the myth pushed by today’s economists that QE is a cure-all for downtrodden economies. It isn’t and Japan will become the template to prove it.

Monster stimulus on the way

The new Bank of Japan (BoJ) Governor, Haruhiko Kuroda, started work on Thursday and his first day on the job disappointed investors. At a press conference, Kuroda pledged to do whatever it takes to defeat deflation and reiterated the government’s target of 2% inflation. But he provided little in the way of specifics and investors promptly bought the yen and sold stocks.

More concrete measurers will almost certainly come by the central bank meeting on April 3-4. There are good odds that they may come even earlier via an emergency meeting of the bank.

It’s widely expected that the BoJ will expand its 101 trillion yen (US$1.06 trillion) asset buying program by more than 10 trillion yen. Also, it will start buying Japanese government bonds with remaining maturities of up to five years by scrapping the upper limit of three years by the end of April.

The idea behind the strategy is that you create money out of thin air, use that money to buy government bonds off private institutions and others, thereby increasing money supply and possibly inflation. Also, the institutions will start lending the money out, thereby kick-starting spending and the economy. That’s the theory anyhow.

What was fascinating to watch was the verbal sparring between the outgoing and incoming BoJ governors. In Japan, where group consensus rules, this was almost an outright brawl.

Outgoing Governor Masaaki Shirakawa has never been a believer in the inflationist policies of the new government and he didn’t mince his words in his final days in office:

“Even if prices rise 2% and wages do the same, that won’t mean an improvement in people’s living standards … what we want to achieve is an increase in real economic growth…

… Past figures in Japan as well as in Europe and the U.S. show that the link between monetary base and prices has been broken.”

The latter refers to the fact that printed money in the U.S. and Europe hasn’t flowed through to economies as banks have sat on the money rather than lent it out.

And if Shirakawa wasn’t clear with the above, he was with the following:

“If there was one single measure that would have resolved the problem, just like clearing a fog, then we wouldn’t have been in this state for the past 15 years.”

The new BoJ chief, Haruhiko Kuroda, wasted little time trampling on his predecessor’s legacy. Though couched in economic jargon, his statements were clear enough: Shirakawa was part of a failed era of central banking and something new needed to be done:

“It’s very important for the BoJ to make itself responsible for the 2% [inflation] target by a certain period … We should not make excuses that it wasn’t our responsibility if we fail to achieve it.”

And:

“In the long term, the correlation between money supply and inflation is high.”

In other words, if we print enough money, inflation will come. And we’ll do whatever it takes to get the job done.

Is it the right path?

The sparring between the two central bankers isn’t just an arcane discussion. It’s part of a much larger debate about the effectiveness of stimulus policies. And it matters because Japan is the world’s third-largest economy and it’s about to pursue these policies on a grander scale.

What’s amazing is the extent to which those advocating stimulus in the slow-growth developed world now dominate public debate. Consider a recent article by Financial Times columnist Martin Wolf, entitled “The sad record of fiscal austerity”. In it, Wolf takes Europe to task for enforcing spending cuts while their economies were in dismal shape:

“By adopting [outright monetary transactions], the [European Central Bank] could have prevented the panic which drove the [credit] spreads that justified the austerity. It did not do so. Tens of millions of people are suffering unnecessary hardship. It is tragic.”

He goes on to recommend a mix of stimulus, increased public spend and structural reforms to help Europe’s plight. And he finishes with this:

“In the long run, the fiscal deficit must close. In the short run, the UK has the chance to pursue growth. It should take it. So should the US.”

The arguments of Wolf and others of his ilk can be crudely summarised by three facts, which most of them would regard as beyond dispute.

Fact 1: The U.S. recovery proves stimulus works and the recovery will happen faster if there’s more aggressive QE.

Fact 2: Europe remains in the doldrums because it’s pursued spending cuts which have failed to repair economies.

Fact 3: Japan has never tried aggressive stimulus to overcome its long-term deflation problem and it needs to follow in U.S. footsteps immediately.

Given these are “facts” beyond dispute, let me dispute them.

Fact 1: It is far too early to tell whether U.S. stimulus policies have worked. They have propped up the economy in the short-term, but whether that’s sustainable in the long run is open to question. Even in the short-term though, the recovery has been slow and unimpressive. Consider: 2012 GDP growth of 2.2% vs a post World War Two average of 3.2%, a current unemployment rate at 11.3% if you include that have dropped out of the workforce since 2008, real household incomes are still 10% below levels in 2000 and the velocity of money (M2) is the lowest in more than 50 years (indicating printed money hasn’t circulating into the real economy).

Money velocity - Mar13

Fact 2: Europe hasn’t pursued austerity. Anyone who says it has is lying. But it makes for a nice political argument in favour of stimulus. European total debt has kept climbing, now at 390%, as the private sector hasn’t paid down any debt, while governments have increased their debt portions. No cutbacks here!

Euro debt - Mar13

And for the curious, unlike QE, there is some historical evidence that austerity can actually work. In my neighbourhood of Asia, the financial crisis of 1997-1998 brought tremendous pain to many Asian countries, but through austerity and sweeping economic reforms, they recovered relatively quickly and in much better shape.

Fact 3: Those that claim that Japan has never pursued aggressive stimulus are talking rubbish. But again, it’s nice propaganda for Keynesian advocates. From 2001-2006, Japan embraced large-scale stimulus, with its monetary base increasing by a mammoth 36% year-on-year at its peak. During the period, the monetary base rose 82% in total. But economic growth was never revived, the currency rose rather than fell and inflation continued to decline. QE in Japan was dropped because it was seen as failing.

So the question must be asked: will the conventional wisdom advocating enormous stimulus be Japan’s saviour or its noose?

Why Japan will fail

The subtitle indicates where I stand on the matter. Given its over-indebtedness, Japan has few good options left. But the policies being pursued by Shinzo Abe will fast-forward a major debt and currency crisis. It’s a matter of when, not if.

Government debt to GDP in Japan is now 245%, far higher than any other country. Total debt to GDP is 500%. Government expenditure to government revenue is a staggering 2000%. Meanwhile interest costs on government debt equal 25% of government revenue.

There’s no way that Japan will ever repay this debt. It has two main options: either go through extraordinary pain by cutting back on government expenditure or print substantial money to inflate some of the debt away.

Japan is choosing the second option, as are most governments around the world. It would rather print money than cut spending and doom the economy to a substantial contraction. The choice to print money though will result in an even more painful and drawn-out outcome.

It’s inevitable that the yen will fall further from here, potentially much further. I’ve previously said that the yen at 200 or 300 on the dollar would not surprise. This could prove optimistic.

It also seems inevitable that Japanese interest rates will rise and bonds will sell off. Yields have to rise to just 2% for interest costs on government debt to take up 80% of government revenue. The jig will be up well before that though.

Those that argue this won’t happen as 91% of Japanese government bonds are held by domestic investors are missing some key points. Foreign ownership of bonds is rising as domestic investors need more money to fund their retirements (Japan’s rapidly ageing population). Foreigners will demand higher yields for the risks that they’re taking on. And even domestic investors aren’t going to sit by earning 0.6% on a 10-year bond as hyperinflation takes hold and the currency tanks.

Currency wars to begin in earnest

Talk of currency wars has been on the backburner for a few months. Expect that talk to heat up and become a reality as Japan ramps up stimulus in the next two weeks.

The likes of South Korea and Taiwan are already suffering from the sharp fall of the yen. They, and many others such as Germany and emerging countries, aren’t going to sit by and watch their exporters get priced out of the market by the Japanese. They’ll retaliate with currency depreciations of their own and the currency wars will be on in earnest. But the question is whether these countries will be able to keep up with a hyper-inflating Japan. I highly doubt it.

This post was originally published at Asia Confidential: http://asiaconf.com/

Does Japan Face a Debt Apocalypse?

By ANDREW BARY | MORE ARTICLES BY AUTHOR
If money-printing causes Japanese inflation to spike, look out below—for stocks and bonds. Why some call Abe "asset-bubble economics." What worries Kyle Bass.



It's only April, but the best gains from this year's top trade—buying Japanese stocks to exploit the steep decline in the yen engineered by Tokyo—might already have been made.

Massive quantitative easing by the Bank of Japan has given the financial markets a pleasant jolt, but ultimately could prove dangerous to the country's bond market, on which the government depends to fund its enormous deficit. That could lead to the debt apocalypse long predicted by Kyle Bass, who heads Hayman Advisors, a Dallas investment firm that scored big when the subprime-mortgage market collapsed during the financial crisis. Bass is playing Japan via cheap out-of-the-money options that likely would benefit from sharply higher rates and a weaker yen.



Bank of Japan Governor Haruhiko Kuroda recently announced a 60 trillion-yen monetary expansion to spur growth. But the endgame could prove disastrous.

Others think Japan's money-printing will give stocks a boost in the short term. But "Abenomics"—the policies of the nation's new prime minister, Shinzo Abe—might not be any more successful in pulling the economy out of its torpor than his predecessors' exertions in the past two lost decades. "Shouldn't Abe stand for asset-bubble economics?" asks Michael Hartnett, chief investment strategist at Bank of America Merrill Lynch.

Japan's stock market is up about 50% from November's lows, when it became evident that Abe's Liberal Democratic Party would be returned to power on a platform of reviving the nation's economy largely by monetary expansion, to bring down the overvalued yen and thus spur export-led growth. Such money-printing has worked on both scores, as the dollar now buys nearly 100 yen, up from less than 80 yen last fall. Abe's handpicked head of the Bank of Japan, Haruhiko Kuroda, recently called this a correction of the yen's previous overvaluation.

The Japanese stock market's gains have been powered by heavy buying by foreign investors, who have poured 6.7 trillion yen ($67.3 billion) into Japanese equities since November, according to Reorient Group in Hong Kong. That includes ¥869 billion in the latest week since the BOJ announced its plan to print ¥60 trillion in early April.

U.S. investors have piled into exchange-traded funds, notably the heavily advertised WisdomTree Japan Hedged Equity ETF (ticker: DXJ), which hedges the effect of the yen's decline. It has risen more than 50% since November, as assets have exploded by $4.9 billion, to $6.3 billion, since Oct. 31, according to Index Universe. The unhedged iShares MSCI Japan ETF (EWJ) is up about 30% in price in that span. In a recent appearance in Chicago, Bass derided these foreign investors as "macro tourists" who simplistically think "cheaper yen, buy stocks."
Japanese institutions have been moving beyond Japan to buy foreign bonds, according to Reorient research director Steve Wang. They are searching for higher income than the minuscule yields on Japanese bonds—about 0.6% on 10-year government debt and zero for short-term instruments, and seeking to hedge against the decline in the yen.

Yet, the Japanese bond market has been unusually volatile in the past few days, suggesting that the BOJ might not be able to fully control it. Bass says, "The beginning of the end" of his scenario is starting to play out because yields are higher than they were recently, when the government announced its massive bond-buying program.

THE WEAK YEN IS supposed to boost Japan's economy by spurring exports. But "Japanese industry has been hollowed out," Bass has contended. Years of unproductive corporate investment have left Japan noncompetitive in industries it once dominated, according to Charles Dumas, head of Lombard Street Research. As a result, Japan has opened plants abroad that don't benefit from currency devaluation. But a cheaper yen will boost the cost of imports of raw materials, especially energy, after the shuttering of nuclear plants following the Fukushima disaster of 2011.


The Japanese government aims to produce 2% inflation, but Bass warns that "those wishing for inflation in Japan know not what they wish for." Greater inflation likely would be accompanied by a rise in interest rates, making it more expensive for Japan to fund its towering debt.

Japan's debt is more than twice the country's gross domestic product, compared with near parity in the U.S., and Japanese debt of more than $10 trillion is roughly 24 times basic annual tax revenues of $471 billion; the comparable multiple for the U.S. is about six. Japanese tax revenues cover only about half of government spending, which means debt is rising by more than $400 billion annually. Japan is paying just $100 billion annually to service its debt. Government finances are vulnerable to higher interest rates, as a one-point rise would cost an additional $100 billion.

Bass sees these trends culminating in a debt crisis that eclipses past crises in Argentina and the euro zone. He has said that he has no timetable for a potential Japanese financial crisis, but if one occurs, the "yen could move north of 250" to the dollar and rates could get "into the teens."

"It's the most obvious scenario of my adult life," he has said. "The question is when."

His is an outlying view, but so was shorting subprime-mortgage-backed securities in 2007. Even if Japan's debt bomb doesn't go off as he anticipates, American investors flocking to Japanese ETFs might wonder what happens if the Abe asset bubble pops—or merely fizzles.

http://online.barrons.com/article/S...578412563227895722.html#articleTabs_article=1

Kyle Bass bets on full-blown Japan crisis

By Dan McCrum in New York

Kyle Bass hopes he is wrong, and so may everyone else, as the danger predicted by the founder of Dallas-based Hayman Capital is nothing less than a full blown financial crisis in the world’s third-largest economy, Japan.

While the hedge-fund trade of the year has been to short the yen and buy Japanese stocks placed for an export boom, Mr Bass sees in “Abenomics” – stimulus from Japan’s new prime minister Shinzo Abe – signs of stress that he has been predicting for three years.


The length of that call might see him labelled as just another bear pushing a tired case. Shorting Japanese bonds has been the “widow-maker” trade for a decade: as interest rates moved ever lower it destroyed investors betting on a rise.

Mr Bass, though, predicts more than higher yields: “They will have a bond crisis in the next couple of years. A bond crisis doesn’t mean spread widening. It means they lose control of rates and their currency.”

Yet Mr Bass is no kook or perma bear, the investing equivalent of a stopped clock. He has form as one of the select group who predicted and profited from the housing crash in 2007. According to investors, his $1.5bn hedge fund has averaged after-fee returns of 25 per cent a year since 2006.

He is also mostly long, investing in securitised credit, and such things as bank loans issued by SuperMedia, a legacy Yellow Pages-style business.

He demurs on the details of his Japan bets, but the suggestion is option positions that, like those on pre-crisis mortgage-backed securities, trade at the wrong price. Mr Bass says: “What’s funny is that we’re pricing optionality on the risk-free rate using the risk-free rate as an input. So, basically, the outcome of that formula at secular turning points is just wrong.”

For Japan, that turning point is approaching, and to explain why he turns to Bernard Madoff, the US mega-fraudster. “As long as you have more people entering than exiting, you can maintain any kind of fraud, lie, or non-payment of obligations.”

What previous Japan bears missed, he says, was the mechanisms funding Japan. Current account surpluses ran at 3 per cent to 6 per cent, and fiscal deficits used to be only 3 per cent of economic output. Meanwhile, Japanese savers reliably bought JGBs.

However, the population has peaked and spenders now outweigh savers, the current account surplus has almost gone, and the budget deficit has ballooned to 11 per cent of gross domestic product. “The entire mechanism by which they fund themselves has literally changed overnight,” he says.

The standard riposte to this is twofold, that net debt is offset by Y4tn of government asset holdings, and that domestic buyers of Japan’s debt will rally round in any crisis.

“This gross versus net argument is just silly,” says Mr Bass. “If they go to try to sell any of those assets, it will create a panic.”

He is equally sceptical on the patriotic fervour of Japan’s savers: “Don’t conflate or confuse their love for their country with their love for their government.”

Mr Bass says he commissioned a poll of 1,009 Japanese investors that asked: were your country to have a bond crisis and appeal to you to buy more JGBs, would you be likely to buy more or not?

He says 8 per cent would buy, while 83 per cent responded that they would “run, not walk”.

That choice is likely within two years, he says, though adds that “it’s naive for anyone to say that they can predict with any kind of accuracy the end of a 70-year debt supercycle”.

Mr Bass also says he really hopes he is wrong, and while he is betting against the government in bonds, he is betting with it on the yen.

If the currency devalues and makes Japan more competitive and rates hold steady, “then the world would be a much better place”.

But, if he is right, well, “if there’s a quadrillion yen that is long the cash debt, they’re all on the wrong side”, and there might be another couple of trillion dollars worth of interest rate swaps outstanding, he says. “So, when you think about who’s where and who’s on the wrong side, the answer is: everyone is on the wrong side.”

A Yen for Cash: How the Bank of Japan Could Threaten the Global Economy
By Michael SchumanApril 08, 20130


Follow @TIMEBusiness

Japan has been an experiment in economics ever since its crushing defeat at the end of World War II. First, Tokyo employed inventive techniques to rebuild its economy and wealth — the export-led, state-directed system in which bureaucrats “targeted” industries for special support — that broke with economic tradition and became a development model for the rest of the region to follow. Then after the country’s massive stock-and-property-price bubble exploded in the early 1990s, Japan became a much examined case study in how to handle (or not handle) a financial crisis. After that, economists have puzzled over why Japan has been unable to escape the long stagnation it has suffered ever since. Now Japan is embarking on yet another set of unconventional policies in an attempt to revive itself, which, if successful, could rewrite the rules of fiscal and monetary policy. Whatever the result, economists will likely be studying Japan for decades to come.

On Thursday, the new governor of the Bank of Japan (BOJ), Haruhiko Kuroda, announced that the central bank would double the monetary base of the country — adding an additional $1.4 trillion — by the end of 2014 in an attempt to end the deflation plaguing the economy. To achieve that, Kuroda will buy government bonds and other assets to inject cash into the economy — what has now become familiar as quantitative easing, or QE — to bump inflation up to a targeted 2%. The plan is part of a greater strategy ushered in by new Japanese Prime Minister Shinzo Abe to restart the economy through massive fiscal and monetary stimulus. It also expands on the efforts by the Federal Reserve, Bank of England and European Central Bank to stimulate growth and smooth over financial turmoil by infusing huge sums of new money into the global economy.

Even by the standards of central-bank largesse since the 2008 financial crisis, however, the BOJ’s plan is massive, unprecedented and untested. You’d think that traditional economists would be screaming that revving up the cash printing presses on such a scale would spark hyperinflation and turn Japan into another Weimar Republic. Not so. Many voices have been highly supportive of Kuroda’s seismic shift. “Monetary policies — including unconventional measures — have helped prop up the advanced economies, and in turn, global growth,” IMF managing director Christine Lagarde, the policewoman of global economic policy, said in a speech Sunday at China’s Boao Forum. “The reforms just announced by the Bank of Japan are another welcome step in this direction.” Nobel laureate Paul Krugman, who has been cheering on Abe’s new policies, emphatically declared the BOJ’s strategy would work. “Seriously, this is very good news,” he commented in a blog post. “Japan is finally, finally making a real effort to escape from its deflation trap. We should all hope it succeeds.”

(MORE: The Great Central-Banking Experiment: Will Unlimited Cash Solve Problems or Cause Them?)

Of course we should hope. But will it work? The idea is that breaking the deflationary cycle will restart Japanese growth. Deflation does inhibit economic activity. Say you’re a Japanese consumer and you expect prices to go down. You have every incentive to save your money, since it is worth more tomorrow than today, and put off purchases, since whatever you buy will be cheaper tomorrow than today. By bringing down long-term interest rates even further and filling banks with cash, the intention is to get companies investing and banks lending.

The evidence so far, though, is that such a strategy won’t succeed. Though the QE programs already undertaken, by the Fed, for instance, haven’t led to the inflation and financial chaos some had feared, the fact is they haven’t worked very well either. Despite the now regular cash injections by the Fed aimed at boosting employment, last week’s jobs report in the U.S. gravely disappointed. Japan’s own attempts at using QE to stimulate its economy have come to naught. According to HSBC, the BOJ’s QE program from 2001 to 2006 expanded the monetary base by about 60% but failed to create inflation.

Krugman would say that the BOJ’s past efforts have fallen short of what is really needed. But others (myself included) aren’t so sure. In order for companies to invest, they have to find something to invest in; banks have to find loans worth making. Otherwise, the newly minted money just sits around, or ends up outside the country. Consumers will spend more if they think their future earnings prospects are getting better. That means Japan has to post sustainable growth. If you believe that Japan’s deflation is the result of a lack of demand, then supplying more cash won’t necessarily tackle deflation or restart growth. What Japan needs, then, is real reform alongside its monetary deluge, to break down the regulatory hurdles to growth. That means opening the domestic economy to more competition and fixing a distorted labor market. Here’s what rating agency Fitch had to say:

Experience in other major advanced economies shows that quantitative easing is not in itself an economic panacea. QE cannot be extended indefinitely. However, in the short to medium term, it can buy time to tackle other issues by holding down the government’s debt servicing costs and by giving a broader fillip to activity. Therefore, developing and implementing a credible fiscal strategy over the medium term, and enacting structural reforms to raise the real economic growth rate, remain central issues for Japan.

We also have to be sensitive to the potential downside of the BOJ’s program. Japan is in a highly strained financial situation, with extremely high public debt and extremely high government financing requirements. The Abe program will almost certainly increase that debt. He’s talking of stimulating the economy with large-scale public spending on infrastructure projects — a favorite of Japanese politicians. With the BOJ pledging to spend billions buying up government bonds, the central bank will effectively be financing Abe’s spending spree. The question facing the world economy is: How far can Abe take this strategy before making the nation’s finances unsustainable? And even if the BOJ is successful in ending deflation, that may only heighten the risks to the economy. Here’s how economist Ken Courtis did the math in the Wall Street Journal:

Should inflation rise substantially, as is Tokyo’s declared objective, interest rates would surely follow. The problem here is that debt service already swallows a quarter of Japan’s annual budget — and government debt is set to hit 250% of GDP by the end of next year … As the average cost of government funding begins adjusting upward to account for quintupled interest rates, debt service, like a giant python, would swallow virtually the entire budget. What’s more, with 2.5% interest rates on public-sector debt of 250% of GDP, Japan would have to grow nominal GDP by 6.25% per year simply to keep its debt level from increasing. In real terms (adjusting for 2% inflation), real annual growth would have to be 4.25%. Real growth of 4.25% is conceivable in the abstract, but will not occur on a sustained basis for Japan during our lifetimes.

(MORE: Is Asia Heading for a Debt Crisis?)

There are other risks as well. By flooding Japanese financial markets with cash, that cash will have to find someplace to go, and it won’t all find a home in Japan. That suggests that the BOJ may be stoking inflation elsewhere, as well as potential asset bubbles. Furthermore, the BOJ policy will weaken the value of the yen (as has already started to happen). This is a conscious policy to aid Japanese exporters. But it is also a beggar-thy-neighbor policy that could spark countermeasures from Japan’s trading partners. We forget in all of the mania about China that Japan, despite its two-decade decline, is still the world’s No. 3 economy, and what the BOJ does will have a sweeping impact around the world. As Courtis warns:

Moving from mild deflation to sharply higher inflation will expose Japan to risks of vast financial turmoil. Yet it is to this very risk that Tokyo is now opening the door. Given the size of its economy, the scale of its debt and how tightly its financial system is interwoven with world markets, Tokyo’s strategy holds frightening implications for us all.

Let’s hope that the economics lesson Japan offers this time will be one to praise, not lament.

Read more: http://business.time.com/2013/04/08...ld-threaten-the-global-economy/#ixzz2TwDfjrov

So as I have said; Japan and Britain outdo you Americans per head of population etc in the debt game. It is looking like Japans game will be up soon.

Japan owes too much money.
They chose to kill of their children, so now they have a booming population of Seniors and no-one to do the work, or care for the elderly.
And they have destroyed their island nation with radiation.

They are done. What is left is just the twitching of the body after the heart has stopped beating.

Gee, this is the most scary thing on the board at the moment and just one comment. Japan goes then it could be enough the set many places off.

CC

I'm still fending off Denni's attacks on my dogs!

yes... this seems to be just another brick in a crumbling wall.

I do a lot of business with companies in Japan, SK and China ... they all seem to still have $ to spend.... right now

Business people are saying that things are quite.

China Connection said:

Gee, this is the most scary thing on the board at the moment and just one comment. Japan goes then it could be enough the set many places off.

Click to expand...

Very possible.

naturallysweet said:

Japan owes too much money.
They chose to kill of their children, so now they have a booming population of Seniors and no-one to do the work, or care for the elderly.
And they have destroyed their island nation with radiation.

They are done. What is left is just the twitching of the body after the heart has stopped beating.

Click to expand...

^This^ Not long before Japan is finished as a nation. China will most likely take over. As a whole, this coming collapse will kill off a good portion of the worlds population. Good chance Japan could be the trigger however, we are looking at a hundred ways this could go down.
We are on the cusp of a dark age none other then the World has seen since the dino's.

And just to think, years ago i thought Japan would be the first to build a way to send their population into space and populate another planet.

Need a comment?

WE ARE SCAAROOOOOOOOOODDDD!

“Giant Bet” Could Trigger “the Mother of All Debt Crises” in Japan: Neil Irwin
By Aaron Task | Daily Ticker – Tue, Apr 9, 2013 12:32 PM EDT

http://finance.yahoo.com/blogs/dail...igger-mother-debt-crisis-japan-163254921.html

The Japanese yen fell overnight to its lowest level against the dollar since April 2009 as investors continued to respond to policymakers’ aggressive efforts to stimulate the Asian nation's moribund economy.

The yen has been weakening since late 2012 as Prime Minister Shinzo Abe campaigned on a platform to boost economic growth via massive fiscal and monetary stimulus. The trend continued after his election victory and accelerated in recent weeks after newly appointed Bank of Japan Governor Haruhiko Kuroda announced plans to double the BOJ’s monetary base by the end of 2014.

Last week, Kuroda announced an aggressive program of bond buying and set an inflation target of 2% for Japan, which has been struggling with deflation and lackluster economic growth since the early 1990s.

“The new government under Abe and Kuroda is trying to print money and really go for the fences,” says Washington Post columnist Neil Irwin, author of The Alchemists: Three Central Bankers and a World on Fire.

While Fed Vice Chairman Janet Yellen (among others) called the BOJ’s actions “very appropriate,” investing legends such as Bill Gross and George Soros (among others) have warned it could lead to ruin.

Related: GARY SHILLING: The Japan Train Wreck Is Accelerating

Irwin is non-committal on how this plays out but is certainly aware of the risks Japan is taking.

“It’s a giant bet,” he says of what’s being called Abe-nomics. “Is there a tipping point where their debts can become the mother of all debt crisis?”

At issue is Japan’s debt-to-GDP, which is already the largest in the developed world at 200%, a problem complicated by the nation's lackluster growth and aging population.

“It’s a narrow needle to thread,” Irwin says. “ You want enough inflation and growth to get the economy back on track [which] will bring down deficits, but not so much your bond yields rise and then you’re in fiscal trouble.”

Related: “Obscene” Stimulus Will Trigger ‘Made in Japan’ Crisis in 2013: Mauldin

While many Americans rightly worry about what the Fed is doing, most experts agree Japan’s stimulus efforts pose a more immediate threat to a fragile global economy even as financial markets continue to run fast and hot on easy money.

I agree with Irwin’s analysis that events in Japan are “the most interesting story in global economics” right now and will likely prove to be the biggest story of 2013, possibly beyond.

Related: Bernanke Is "One of the Most Consequential Central Bankers of All Time": Neil Irwin

Aaron Task is the host of The Daily Ticker and Editor-in-Chief of Yahoo! Finance. You can follow him on Twitter at @aarontask or email him at altask@yahoo.com

"This Ends in War"

In a presentation given by Kyle Bass last fall regarding these issues he rhetorically asks, "You know how this ends? ... This ends in war,... and not small ones."

Not sounding that far away with China.

http://www.youtube.com/watch?feature=player_embedded&v=AR3TyfKTeNE#!




Published on May 21, 2013

Christine Hughes, President and Chief Investment Strategist, discusses details of Japan's radical monetary policy.

She's a very smart woman, and I love very smart women!

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People & Blogs
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Standard YouTube License

This is posted from: http://www.dailypaul.com/286263/japan-shock-therapy-plans-to-double-monetary-supply

She does a VERY good job of explaining the resurgence; the EXPLOSION (again) of the Yen carry trade. It's back folks... and will utterly DESTROY their currency. Meanwhile... the party's on!

She explains it best... take the time to listen.
That poor island... when this bubble bursts.

Keep in Mind....

While she does a GREAT job at explaining the 'Carry Trade' effects...
George Soros (as usual) talks out of both sides of his mouth.
What do I mean?
Well is this REALLY a bear market in gold?
Not really. It's a bear market in PAPER.
Paper Gold. ETF's
Why?
2 Reasons:

1. They (holders of paper Gold) are looking (and always were looking)
for YIELD... she explains that very well. So they are dumping it for 'other' paper... the Yen carry trade. The yield is GUARANTEED (for now).

2. They (holders of paper Gold) are quickly realizing they cannot GET their hands on the physical.

Click to expand...

Bump for the graveyard shift.

The question is CC- How long before Japan blows? They have kept it going for two decades, so how much longer can they keep it together?

I kind of give you an exact time! Once World War Three starts then in general the world economy will be allowed to crash and men will have the option of going up or going hungry. Food will inflate strongly and saving will disappear in shot order.

Japan could be used as the trigger for the rest to crash just as much as any other large economy could be used. Japan and Britain but are in a bigger mess than you in the US for instance.