How Japan Blew Its Savings Surplus: What A Keynesian Dystopia Looks Like

Conta Corner ^ | 11 June 2014 | David Stockman

[Lorianne]

Financially speaking, Japan is fast becoming a Keynesian dystopia. Its entire economy is now hostage to a fiscal time bomb. Namely, government debt which already exceeds 240% of GDP and which is growing rapidly because even the recent traumatic increase in the sales tax from 5% to 8% does not come close to filling the fiscal gap. Moreover, even at today’s absurdly low and BOJ rigged bond rate of 0.6% nearly 25% of government revenue is absorbed by interest payments.

Now comes the coup de grace. Japan’s savings rate has collapsed (see below) and its vaunted current account surplus is about ready to disappear. This means Japan’s accounts with the rest of the world will cross-over into a “financial no man’s land”; it will be forced to steadily liquidate its overseas investments to pay its current bills—an investment surplus built up over the course of 50 years. But this will also reduce foreign earnings and thereby expand Japan’s growing deficit on current account.

Accordingly, to finance its “twin deficits” it will have to attract massive amounts of foreign capital for decades to come—an imperative which will require a devastating rise in interest rates, perhaps as high as 4% according to one expert :

[VRW Conspirator]

Can we just get this financial collapse thing over with already!

[TexasFreeper2009]

the best way to stay ahead of the world... export liberalism !

[mojito]

There was a story on ZeroHedge yesterday about how there were no bids for JGB futures trades because the Bank of Japan is the entire market.

http://www.zerohedge.com/news/2014-06-10/japanese-bond-futures-volume-collapses-zero-even-service-sector-implodes

[truth_seeker]

“That” David Stockman.

[Pollster1]

BOJ rigged bond rate of 0.6% . . . Japan’s savings rate has collapsed

Could there be a connection between secure savings such as bonds paying almost nothing and people choosing not to save?

[VanDeKoik]

So who’s going to add Japan to their empire? Russia? China? The U.A.E?

[alexander_busek]

Well, at least Japan has healthy demographics, so I guess that they have good prospects for solving their problems. /s

Regards,

[aquila48]

Bookmark

[pfony1]

Would Japan like to “rent” some unwanted surplus refugee children?

[babble-on]

They do have 1.1 trillion dollars in US Treasuries they can dump to soften the transition.

[Gen.Blather]

“Could there be a connection between secure savings such as bonds paying almost nothing and people choosing not to save? “

I wonder what they’re calling savings? I moved everything into the stock market. But now I’m transitioning it into rental property. Neither would be called “savings.” Everybody I know has ditched their “savings” account and is doing some sort of investment. More and more are moving it into solid objects with tangible value; old cars, art, coins, property, etc.

[Alex Murphy]

Financially speaking, Japan is fast becoming a Keynesian dystopia. Its entire economy is now hostage to a fiscal time bomb. Namely, government debt which already exceeds 240% of GDP and which is growing rapidly because even the recent traumatic increase in the sales tax from 5% to 8% does not come close to filling the fiscal gap. Moreover, even at today’s absurdly low and BOJ rigged bond rate of 0.6% nearly 25% of government revenue is absorbed by interest payments.

Now comes the coup de grace. Japan’s savings rate has collapsed (see below) and its vaunted current account surplus is about ready to disappear. This means Japan’s accounts with the rest of the world will cross-over into a “financial no man’s land”; it will be forced to steadily liquidate its overseas investments to pay its current bills—an investment surplus built up over the course of 50 years. But this will also reduce foreign earnings and thereby expand Japan’s growing deficit on current account.

Accordingly, to finance its “twin deficits” it will have to attract massive amounts of foreign capital for decades to come—an imperative which will require a devastating rise in interest rates, perhaps as high as 4% according to one expert...

PFL