We Are All Japanese Now

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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.

Stay tuned!

Regards,

Bill Bonner
For Daily Reckoning Australia

Bill Bonner

Bill Bonner

Best-selling investment author Bill Bonner is the founder and president of Agora Publishing, one of the world's most successful consumer newsletter companies. Owner of both Fleet Street Publications and MoneyWeek magazine in the UK, he is also author of the free daily e-mail The Daily Reckoning.
Bill Bonner

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Comments

  1. “Women do not get married” – what a really very odd way of phrasing that Bill. It sounds as though you are attributing Japan’s low marriage rates to women. Is this what you’re doing? And if not, why did you only mention one half of the equation?

    (I’m pretty sure that in Japan, the law states that marriage is between a man and a woman – a women doesn’t just turn up to get a certificate to announce herself no longer single, without someone standing next to her… just a thought…)

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  2. between getting Fukushima’d and IMF’d we are all freakin
    ‘ doomed.
    and like the futuristic cities in Logan’s Run, the survivors will be all freakin’ domed.

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  3. The trick is to be one of the evil old men who was born just before the radiation spike destroyed their embryonic testes and are highly prized as breeders by all the cute young girlies with two heads and three breasts whose partners have proven infertile Peter! ;) Though do make sure you collect your stud fee in bullion of course … :D

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  4. “…the survivors will be all freakin’ domed…”

    That moment arrived long ago at DRA, peteg:

    http://www.google.com.au/search?q=coneheads&hl=en&client=safari&rls=en&prmd=ivns&tbm=isch&tbo=u&source=univ&sa=X&ei=IjCcTfr-OJO3cb6W5dIF&ved=0CEcQsAQ&biw=1317&bih=835

    Send ’em back to the NH…

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  5. Japan – “fiscally and demographically doomed” :

    Wish Greg was about to add some balance. But either way, long running economic difficulties can certainly seem to have some social impacts Lisa? :

    http://www.washingtonpost.com/wp-dyn/content/article/2010/10/24/AR2010102403342.html

    The simple fact seems to be that in situations where countries have long term economic problems, many just do end up being non/minimal participants both fiscally and socially going forward maybe?

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  6. “women do not get married”

    {Flame]
    Well may be because in this economic trying times men are looking for assests not liabilities…… Like a wise man once said… “If it has tits or wheels it is going to cost you money and cause you trouble”

    Gold is continuing to tell us all is not well….

    Stillgotshoeson
    April 6, 2011
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  7. Or as my old man reckoned about teeth maybe? => “Trouble, when you are getting them; Trouble when you’ve got them; Trouble when you are getting rid of them!” … Cheers Shoes! ;) With me beginning to suspect that buying a recipe book entitled “Food for Gummies” just might be a jolly excellent investment?!? :D :D :D

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  8. The significance of Japan’s nuclear disaster is going to have a big impact on Asia’s economies for generations, as the “severity” assessment keeps developing from “not worse than Three Mile Island” to now “Less bad than Chernobyl” (although I reckon it was always going to be a bigger problem than Chernobyl by an order of magnitude). Note that Chernobyl didn’t have hundreds of spent fuel rods full of plutonium lying around, nor was it in as densly a populated area, nor was it by the sea (arguably Asia’s most important food source), which means the Fukushima reactors cannot simply be buried in concrete but will continue to leak into the sea and water table. The one thing the two disasters have in common are the blatant lies and disinformation regarding the amount of radioactive leakage and the prospects for resolution.

    Japan’s troubles are just in their beginnings, and they will spread throughout the region, as far as the US, certainly from a health cost and human productivity point of view. That women (and men) in Japan are not getting married will be made the more problematic when fertility rates dwindle and birth defects soar.

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  9. From what I can gather being a single mother in Japan is not good for your social standing to put it mildly. So the equation is simple, Japanese women that don’t get married don’t have children thus compounding the aging problem.

    I have found one internet page which indicates that less then 2% of births occur outside of marriage and so I guess there is your answer.

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  10. Dan, I have to agree. And with peak oil, we’re probably going to have to go all out looking for new sources, especially in Australia. Found an Aussie ballad about it recently:

    Goodbye Granddad

    Poor old Granddad’s passed away, cut off in his prime,
    He never had a day off crook – gone before his time,
    We found him in the dunny, collapsed there on the seat,
    A startled look upon his face, his trousers around his feet

    The doctor said his heart was good – fit as any trout,
    The Constable he had his say, ‘foul play’ was not ruled out.
    There were theories at the inquest of snakebite without trace,
    Of redbacks quietly creeping and death from outer space

    No-one had a clue at all – the judge was in some doubt,
    When Dad was called to have his say as to how it came about,
    ‘I reckon I can clear it up,’ said Dad with trembling breath,
    ‘You see it’s quite a story – but it could explain his death.’

    ‘This here exploration mob had been looking at our soil,
    And they reckoned that our farm was just the place to look for oil.
    So they came and put a bore down and said they’d make some trials,
    They drilled a hole as deep as hell, they said about three miles!

    Well, they never found a trace of oil and off they went, post haste.
    But I couldn’t see a hole like that go to flamin’ waste,
    So I moved the dunny over it – a real smart move I thought –
    I’d never have to dig again – I’d never be ‘caught short’.

    The day I moved the dunny, it looked a proper sight,
    But I didn’t dream poor Granddad would pass away that night
    Now I reckon what has happened – poor Granddad didn’t know,
    The dunny was re-located when that night he had to go.

    And you’ll probably be wondering how poor Granddad did his dash–
    Well, he always used to hold his breath …..
    ……
    ……
    ……
    ……
    ……
    ……

    Until he heard the splash!!

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  11. http://www.theaustralian.com.au/national-affairs/buyer-retreat-spells-slump-in-home-prices/story-fn59niix-1226034940341?from=public_rss

    Figures compiled by property analysts SQM Research show there are now 356,600 properties on the market, which is almost 50 per cent more than a year ago.

    What? there are 50% more properties on the market than there were a year ago???
    I thought there was a major shortage of properties in Australia?
    and that Australia was “DIFFERENT”???

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  12. Interesting quote from your link, Steve:

    “The number of loans for _new_ homes slumped 12 per cent in February and has dropped almost 36 per cent in the past three months.”

    Means far less homes being built.

    Don’t confuse “356,600 properties on the market” with “a major shortage of properties in Australia”. Two totally different things. It’s possible there are people actually _living_ in those homes, you know. ;)

    If I’m wrong, will you buy if the Sydney market falls(?):

    10%

    20%

    30%

    40%

    50%

    60% – 80% (as some here have flagged… .)

    Hypothetical, I know, but do you have a plan in place?

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  13. Steve: As I said to some (speculator) friends 6 months ago “speculators should get out of real estate NOW”. Or as I’d say today, speculators should get out of real estate 6 months ago! Speculators to my mind are people who are borrowing money to invest, hoping to negative gear and sell at a profit upon “maturity” of their residential investment. Time is running short for them, if it hasn’t run out already.

    But if you’re not in debt and are collecting rent, sit back and enjoy, there’s hardly anything to worry about.

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  14. Ned S, like Dr StrangeLove no doubt. If I don;t do this ram (sheep) in soon, as he is related to his girlfriends, I’ll be seeing similar mutations. that’s a DRA law of the jungle, these guys need to fight it out to the last man, but we’ve bred the horns off them.

    here’s a “conspiracy theory” which is worth considering.
    HAARP caused the earthquake(s). look it up if you have the time, it is possible. Ive got some old lead sheeting here if I need to make a hat.

    http://www.youtube.com/verify_age?next_url=http%3A//www.youtube.com/watch%3Fv%3DY-VMfzO94M0

    The Stuxnet Worm took out the reactor’s cooling systems, like in Iran.

    no advocating it though I am open minded and suitably paranoid.

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  15. peterg – I think it’s going to be very hard to prove or disprove that kind of stuff at this stage, but further on that topic is a rumour (and no more than a rumour) that a clandestine weapons research/development facility exists somewhere under/near the power plant. Maybe that’s why there were just so many spent fuel rods lying around? And so much radiation in far away places. So much of what has happened there smacks of incredible risk taking in terms of design and how the whole place was managed – by highly competent people with no genuine shortage of funds – so stupidity is not really an excuse in my opinion.

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  16. Its raining radiation in Asia. I will be eating Aussie food and no other from this point. Too many brand labels with “local and imported ingredients” out there which can go jump.

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  17. You could say they won’t let bad food in but in the current day it seems maintaining markets is more important than the populations health.
    Some people think there’s too many people around anyhow.

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  18. some people think that the PTB are deliberately letting the world go to waste, so that the chosen ones can survive. things make so much more sense if you induce a will power to many problems. ie gameplaying the next depression to bring in ‘austerity’ measures and resecure assets to all the bodgy finance. it makes more sense, but it can drive one a little mad .

    btw HAARP exists (see that movie I linked). the debate is how much the billion watts put up there is amplified and whether (or is that weather) it can be focused.

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  19. peterg – For a given outcome, create a problem, for which the reaction is the solution that achieves that outcome. You’re quite right to keep the possibility that what is basically a human created problem which could be seen coming years if not decades in advance (the financial crisis) is an event that was not in the least accidental and therefore serves some purpose for somebody. There is a lot of evidence to support that idea, and the greatest crimes are simple ones but cloaked in smokescreens and apparent chaos.

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  20. “I will be eating Aussie food and no other from this point” – With that ultimately meaning we’ll all eat only Oz grown gruel I guess Lachlan? (Geez have you seen the price of toms lately – $8 a bloody kg!)

    We have a strange economy – I’ve had cause to price a printer cartridge recently – $80 my local ‘drive here and pick it up your bloody self supplier’ said. Geez mate, I can get one off the internet for $40 says I – Having done a quick check earlier. Wouldn’t surprise me says he – But we use quality US parts and work locally using local people.

    So I bought one from an Oz based competitor for $24.95 off ebay – With that price including postage. (Was tempted to just buy the equivalent 3,000 page cartridge refill kit direct from China for $7.99 and do it myself – But I was in a hurry.)

    Which raises the point of what do we do in Oz that’s ‘productive’? (And Yes I think I understand the diff between competitive and productive; But at the risk of muddying the waters still ask if something can be productive if it isn’t competitive?) And am still thinking about that in terms of our domestic housing prices? While being bloody sure our attempts at refilling printer cartridges are NOT competitive even if some might wish to argue they remain productive?

    PS: A totally new equivalent printer would cost $68. But I suspect the cartridge it comes with wouldn’t be any good for more than 1,000 pages as that’s just how the manufacturers/suppliers seem to play the game these days? I was tempted to go that way though – Just burn a bit more plastic and carbon and steel!

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  21. Ned S. stop printing and get an ebook reader. print only if essential. get a laser printer that will print pages that last longer.

    What does Oz do? suck arse and keep the illusion of empire going just that little bit longer. and avoid nuclear power. which is an investment in having a future at all.

    Reply

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