Posted on 04/05/2011 2:43:23 PM PDT by blam
We Are All Japanese Now
By Bill Bonner
04/05/11 Delray Beach, Florida – Even before the Richter needle began to quiver and the pots began to fall, Japan’s finances were already shaky. The country began running huge budget deficits following the stock market sell-off of 1990. Economists called this “fiscal stimulus” back then. Two decades later, the deficits are bigger than ever – 7.5% of GDP this year – and they stimulate nothing.
Japan has gotten in the habit of living beyond its means. The country has an accumulated debt equal to twice national output and 20 times tax revenues.
Japan has become a “zombie state.” Its people are getting old. Net of private and public borrowing, its savings rate is now hugely negative.
Japan is “fiscally and demographically doomed,” as Dennis Gartman puts it.
The zombie state survives only by feeding off the next generation. The government borrows, spends the money, and then counts on the next generation to make good on the loans. But the next generation is disappearing.
CNN carried an interview with an emergency worker in Japan. He noted that there were very few children among the dead. The interviewer speculated that the young were faster and better able to scramble to safety. Another reason may be that young people in Japan barely exist. There are no immigrants. Women do not get married. They do not have children – at least not enough to replenish the population anyway.
Obviously, a change of direction is in order. But what’s the hurry? One of the remarkable features of our financial world is the low yields on US and Japanese sovereign debt. Japanese investors – who own 94% of Japanese government bonds – lend money to the central government for 10 years at only 1.2% yield. At that rate, the carrying cost of debt is so low borrowers are under no pressure to reduce their debt load or to change their habits. It is easier to add more debt than it is to face up to the challenge of a major political and economic restructuring.
No wonder the debt increases. Adding debt is the path of least resistance. And this is the path politicians tend to follow. As we mentioned here two weeks ago, the Bank of International Settlements estimates that Japan’s debt will reach three times national output by the end of this decade.
This was the status of things when the teacups began to rattle and fall. Zero interest rates, money-printing and large fiscal deficits were already regular, every-day, business-as-usual components of the Japanese economy. Take them away, and all the unhappiness that the Japanese authorities had tried to avoid for so long would suddenly fall upon them.
As it turned out, the teacups fell upon them first. And then the sea rose up and threatened to swallow them whole. And if that weren’t enough, their power plants turned against them too. Their recent quake was the most expensive natural disaster in history – likely to cost $200 billion to repair, according to an estimate from Goldman Sachs. The Tokyo stock exchange saw its biggest sell-off in 24 years – a loss in market value of $610 billion.
Under these circumstances, austerity was not only out of the question, it was no longer even part of the conversation. Reprising almost the exact words used by Ben Bernanke, Larry Summers and Tim Geithner in the autumn of 2008, the Japanese announced they would deal with the emergency at hand and worry about the long-term integrity of their national finances later.
In came the Bank of Japan with ¥15 trillion ($189 billion) of QE on Monday and another ¥21 trillion ($264 billion) on Tuesday. By Wednesday, almost $700 billion of new funds had been made available. On Tuesday, the price of gold also sank $30, prompting observers to speculate that Japan was selling gold in order to raise cash.
Japan hardly needed to sell gold. Like the US, Japan uses debt monetization (now politely called “quantitative easing” but more accurately described as money-printing) to fill in the gaps in its budgets. But as the Japanese age, they save less and less. And the window on “borrowing from ourselves” closes. QE is surely destined to play a larger role in financing both the Japanese reconstruction…and Japanese self-destruction, too.
As to the reconstruction, no one is going to complain if the Bank of Japan buys a few more government bonds. The country is repatriating capital from all over the world. In anticipation of this the yen has spiked to record highs versus the dollar. This makes QE seem not only like a sensible way to make funds available for reconstruction, but a way to help the economy too. It will help push the yen back down, helping Japan’s export industry.
In the long run, no program of unbridled money printing goes unpunished. Sooner or later, Japan will add hyperinflation to its long list of torments.
I really think so...think so....
I’m turning Japanese, I think I’m turning Japanese, I really think so
Turning Japanese, I think I’m turning Japanese, I really think so
__________________________________
Hai domo.
So far we’re 2 for 2.
Great minds think alike.
And so do ours!
???
Is kiddie porn legal now??
???
What a stupid title.
Japanese investors – who own 94% of Japanese government bonds – lend money to the central government for 10 years at only 1.2% yield.
These are wealthy families, corporations and private citizens who live in this nation, have families in this nation, have children and grandchildren in this nation and have no desire to upset the financial applecart.
If push came to shove, a significant portion of them would be willing to give their bonds back to the government unpaid rather than risk financial Armageddon -- with all its potential social costs. Why not? They'd still be relatively wealthy and all the money in the world is useless if the country comes down around there ears.
But that is not the real reason why they would do it. It's hard to explain, but patriotism in Japan is a completely different animal than American patriotism, which is a fierce conscious fire that burns in the breasts of those who love American ideals.
Japan's patriotism is closely reflected in the title of this piece (although not the way the author means). It's often expressed as "Ware ware Nihonjin", which means simply "we are the Japanese" but implies much more. It implies a bond that extends between the highest executives and most pampered aristocrats and the lowest street bum.
It's almost a clan or family relationship. They don't just say that they are all brothers and sisters. They believe it at a level that is so deeply subconscious that they are almost completely unaware of it. It's just there. And it really comes through at times of turmoil. The family closes ranks and starts looking for ways to help each other.
I think the entire world is going to be surprised at how fast Japan recovers from this disaster.
That kind of patriotism is dead in this country, due to multiculturalism.
I'm not talking about skin color, or national origin, but value systems, our value system has been torn asunder, and there's no putting the genie back in the bottle.
Yu-Gi-Oh!
Not really a good time to publish a hit piece on Japan.
Interesting article: Right after 9/11 a French woman wrote that we are all American’s now.
I agree. Pundits like this schmuck Bonner have no clue about Japan.
日本 ピング (kono risuto ni hairitai ka detai wo shirasete kudasai : let me know if you want on or off this list)
For anyone who loathes Japan and the Japanese people, I suppose so......good point.
ok...that’s it...I’m getting the vapors
Disclaimer: Opinions posted on Free Republic are those of the individual posters and do not necessarily represent the opinion of Free Republic or its management. All materials posted herein are protected by copyright law and the exemption for fair use of copyrighted works.