* * * "The world is heading for a once-in-a-century economic crisis," says Ryoji Musha, a strategist for Deutsche Bank in Japan.
How so? Consider the notion that, with perhaps $11 trillion in savings, the Japanese have enough wealth to cope. It sounds as if they do--until you realize that the total on- and off-balance-sheet claims on the household, corporate and government sectors in Japan are about $30 trillion, according to estimates by Goldman Sachs. That sum is six times Japan's $5 trillion GDP. (The total of U.S. public and private debt is $19 trillion, two times GDP.)
Those ratios in Japan are being made worse month by month, year by year, by deflation, which at perhaps 4% annually in Japan (measured in consumer prices) is the most pronounced in the world. Deflation aggravated the Depression in the U.S. in the 1930s. And it can spread. Cheap Toyotas are already putting pressure on U.S. auto prices. What if Japan devalued the yen, taking it from 133 to the dollar to 140 or 150 These Toyotas would then be even cheaper for U.S. customers.
Robert Jay Pelosky, the chief global strategist for Morgan Stanley, says: "This would send a price shock into the U.S. and Europe at a time when we [the U.S. and Europe] are flirting with deflation."
At the same time Japan faces a debt bomb at home, it is also the world's largest creditor. If its banks were panicked into calling in overseas loans, by, say, a run on deposits, an economic contraction would sweep America and the globe. * * *
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