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Friday, January 28, 2011

Canary in the Coal Mine - Japan?

Japan is much further along with demographic issues, and sovereign debt problems. Their debt level is 200% of GDP. The ONLY country with worse debt to GDP is Zimbabwe. And their currency hyperinflation was at 6.5 quindecillion novemdecillion percent in 2008, when that government gave up on their own currency. So Japan is right around the corner to having a WORSE debt to GDP ratio than Zimbabwe. Good luck Japan!

As a plus, the majority of Japan's debt is owed to themselves. So if their country implodes, most of the losses will be their baby boomer generation, not the world.

However, since their issues are leading the western countries, they have been quoted as the one to watch for the coming sovereign debt crisis ahead. Today, we have our first small rumble.
What does this mean? Well at some point, if their credit rating gets cut far enough, we may have yet another Greece on our hands. And unlike Greece, Japan isn't part of a group of countries committed to save it. Of course, I fully expect western countries to come in and push themselves more into debt to stabilize Japan if it starts to have a interest rate problems with issuing new debt.

The problem is Japan has spent their life savings, and in return, they have 20 years of a depressed economy. And now, as their baby boomers need cash, there will be no capacity to borrow more. I fully expect Japan to implode over the next 10 years. Either having their debt rating cut forcing rates up, or their currency to collapse.

The big question is, does America have enough clout to remain stable at the record debt creation level it is on? I am guessing yes. I believe all the smaller countries will be kicked to the door to give America a longer lifeline on its debt. In effect sucking the extra bond money out of the entire system as each smaller country destabilizes.

In any event, as yesterdays post shows, this game must end, one way or another. I believe in the law of math, the rule of science, and not in fables spun by politicians of faerie tales, unicorns, and a never ending boom just around the corner as the human race heads towards a demographic peak.

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