With Special Expert: John Rubino
30 Minutes, 30 Slides
At 512% Total Debt to GDP and 226% Sovereign Debt to GDP Japan's Debt levels
are alarming even compared to the EU 'GIIPS'. The IMF recently warned that
Japanese debt was now "unstable". This is IMF code for unpayable and inextinguishable.
So what is the solution? According to the new "ABE-nomics" policy it is to
double-up.
Japan has replaced the Bank of Japan Governor and mandated a 2% inflation
rate within 2 years. This defies logic at the current levels of debt since
if they are successful, a mere 1% rise in borrowing costs (usually rises with
inflation) would cost them 25% of their tax revenue. Japanese debt is presently24X
central government revenue and Japan is already spending 25% of tax revenue
on interest payments.
As incredulous as this seems it becomes particularly frightening when you
consider that Japan has been able to finance its debt because:
- Japan ran a trade surplus which generated lots of outside cash,
- Japanese citizens had high savings rate and were willing to buy government
bonds.
Both of these advantages are now ending.
- Baby boomers are retiring, so savings rate is heading for zero,
- Trade surplus has turned into deficit. $8 billion trade deficit in February.
What You Need To Know
- Debts are 23X your tax revenues which means Insolvency,
- Doubling Monetary in 2 years is extremely experimental with these existing
debt levels,
- "the BoJ is monetizing at a rate around 75% of the Fed on an economy that
is one-third the size of the US!"
- What they are trying to do is devalue the currency to attempt to become
more competitive while holding their rates market flat,
- Japan will lose control of rates, since leaving the zone of insolvency
is impossible now,
- A 1% increase in interest rates would cost 2% of tax revenue = Insolvency,
- How could Bond investors expect that they will get their money back at
the value it is presently being placed at??
ABE-nomics has all the ingredients of igniting a global crisis but with the
already 25% YTD devalued YEN, Japan has established a new front in the raging
global Currency Wars.
Expect China To React
China is not going to tolerate the aggressive debasement of the Yen. With
20% of Japanese exports going to China they have the abilities to retaliate.
Chine and Japan have a history of conflict as the recent escalation over two
insignificant islands (rocks) clearly demonstrated.
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