Meltdown. That’s a good word for Japan these days.
And I’m not talking about the nuclear reactors, either. I’m talking about what had been one of the most powerful economic engines on the planet.
Look at the facts in late 2010 BEFORE the earthquake, tsunami and nuclear reactor. They didn’t look pretty then; they’ve become nightmarish since:
Japan Will Default as Economy Unravels, Bass Says
October 13, 2010, 4:19 PM EDT
By Nikolaj Gammeltoft and Susanne Walker
Oct. 13 (Bloomberg) – Japan will be forced to default on its debt, Greece’s economy is “done” and Iceland is worse off than Greece, said J. Kyle Bass, the head of Dallas-based Hayman Advisors LP who made $500 million in 2007 on the U.S. subprime collapse.
Nations around the world will be unable to repay their debt and financial austerity in a country such as Ireland is “too late,” Bass said today at the Value Investing Congress in New York.
Japan’s economy may unravel in the next two to three years, and its interest payments will exceed revenue, he said. “Japan can’t fund itself internally,” Bass said.
The country’s year-over-year gross domestic product was 2.4 percent as of June 30. It has the world’s largest public debt, approaching 200 percent of its GDP amid a 5.1 percent jobless rate. Consumer price fell by one percent in September and has been negative each month since May 2009, as deflation has taken hold.
Pricing on Japanese interest-rate swaps is the best he’s ever seen, Bass said. Investors could make 50 to 100 times their capital betting on them, he said, calling them a lottery ticket on Japan’s economy.
Japanese bonds have returned 3.3 percent this year, according to Merrill Lynch Indexes, compared with a return of 0.872 percent in 2009.
Bank Of Japan’s Governor Masaaki Shirakawa refused to expand monthly purchases of government bonds this year even as deflation persisted. The bank on Oct. 5 instead created a 5 trillion yen ($60 billion) fund to buy bonds and other assets, and pledged to keep its benchmark interest rate at “virtually zero” until the end of deflation is in sight. Deflation has been entrenched in the economy since 1998. The GDP deflator, a gauge of prices across the economy, has fallen 14 percent since 1997, according to data compiled by Bloomberg.
A financial crisis in 1997-98 precipitated by bad loans on Japanese lenders’ balance sheets stemming from burst land and stock-price bubbles of the early 1990s set off Japan’s deflation. Property prices have slumped for 17 of the past 19 years, and stocks remain 76 percent off of their 1989 peak, according to the Nikkei 225 Stock Average.
Japan’s currency traded at 81.79 per dollar, compared with 81.72. It touched 81.39 on Oct. 11, the strongest level since April 1995.
Bass began buying securities with shorter durations last year as he predicted central bank and government actions globally to rescue the financial system will result in “outright currency debasement.”
He began buying shorter-term debt and precious metals then, anticipating hyperinflation will lead to higher interest rates. Bass also said in May that Europe’s debt crisis will not be solved by the $1 trillion loan package the International Monetary Fund and the European Union agreed on earlier that month.
–Editors: Nick Baker, Dave Liedtka
And that was all BEFORE Japan went from the frying pan into the nuclear fire.
What’s being said now?
Quake shattered Japan poses global debt worry
GARETH COSTA, The West Australian
March 15, 2011, 6:11 am
Concerns have emerged in global credit markets over how heavily-indebted Japan will be able to pay for its biggest economic reconstruction effort since World War II.
The Bank of Japan’s promise yesterday of a ¥15 trillion ($182 billion) cash injection into its banking system managed to soothe global equities, but not debt markets as Japanese government credit default swap rates used to insure against debt default soared 13 points to 92.
Although not yet at critical levels, analysts said yesterday’s sharp spike in the CDS rates highlighted debt market concerns about Japan’s funding pressures within a cash-strapped global economy.
“When you have a market the size of Japan down this much, it’s going to affect everybody,” Stephen Halmarick, head of investment markets research at Colonial First State Global Asset Management, said.
“A tragedy of this proportion is going to take up a lot of economic resources.
“It’s going to have quite a negative impact on growth.”
Credit markets were already concerned that Japanese government debt had ballooned to $US12.2 trillion, or 200 per cent of GDP.
Insurance experts estimate the repair bill carried by foreign reinsurers will be capped at $US34 billion, with the rest borne by Japanese insurers, the Government and uninsured homeowners.
Japan has so far managed to function under its debt because it has predominantly been funded by domestic investors and because it runs a steady trade surplus.
However, analysts caution that short-term liquidity constraints could prompt strong yen repatriation flows out of foreign markets as occurred after the Kobe earthquake.
Early estimates suggest the cost of the Sendai earthquake will easily exceed the $US100 billion Kobe earthquake in 1995.
Japan’s increased funding pressures are also occurring in a global economy far more cash-constrained than in 1995, and unless export earnings begin flowing soon, escalating funding costs could push the country’s financing costs over the tipping point.
Japan has been one of the biggest buyers of US Treasury debt and in January pledged to also buy up to one-fifth of bonds from the European Financial Stability Fund that was created to bail out Greece and Ireland, all of which will become secondary to Japanese funding needs for the next few months.
The country is also one of the world’s biggest holders of gold bullion.
Any decision to cash in on bullion’s record price and offload much of its sovereign holding would likely depress the gold price.
Japan’s Nikkei equities index slumped 6.2 per cent, its worse daily performance in two years.
What impact will it have on the global markets if the 3rd largest economy in the world defaults? What effect will it have on the ability of the world’s largest debtor – that’s YOU, America – to continue to get credit as WE begin to look more and more like a default-likely credit risk???
Japan was the second largest purchaser of American debt, and was so far ahead of #3 (Japan buys 3 1/4 times more of our debt than Britain), that it’s not even funny. The U.S. needs a
sucker, I mean an investor, to continue to artificially prop-up our insane lifestyle. Who’s going to do that now?
What you’re going to see is either the Fed dramatically hasten the rate at which it devalues the dollar, which in turn will hasten the inevitable result of America becoming a banana republic, or a giant spike in interest rates as other U.S. debt buyers demand more reward for their risks.
A third alternative is that Japan could begin to sell off its US debt to raise money to rebuild. While that seems like the obvious course, it turns out in this crazy world it isn’t; were Japan to sell it’s U.S. debt, the result would surely kill the U.S. dollar, but it would also dramatically strengthen the yen and hurt Japan’s export market just when they need it most.
My point is it’s a lose-lose. And the U.S. loses right along with Japan.
Yet “no drama” Obama didn’t care. He didn’t even bother to mention Japan or it’s earthquake or its tsunami or its nuclear meltdown in his address the day after the disaster. And just to demonstrate that he truly truly, truly didn’t give a damn, he played 18 holes of golf.
See the photos of Obama’s golf outing from Sadhill.
Then there’s the unfortunate fact that this disaster has coincided with the far more important NCAA basketball tournament. A president has to choose his priorities, and clearly the basketball won out.
Note #1: this is hardly new behavior from the man who promised “hope and change.”
Note #2: the mainstream media excoriated Bush for golfing a tiny fraction as often as Obama. One example is the liberal Washington Post headline from August 5, 2002, “Before Golf, Bush Decries Latest Deaths in Mideast.” I wonder what the Post’s headline would be about Obama if they had even a shred of fairness in their coverage?
We’re in trouble. And our leader is a fool. And we have a media that is hell-bent (literally) on ignoring or explaining away this fool’s actions and responses.
One of the things I came to believe as I realized that Obama would actually quite possibly get elected president was that our economy was dead meat. I entirely got out of the U.S. stock market entirely and won’t return until Obama and the Democrats are out of power. The reason is that I believed – and STILL believe – that when our economy collapses, it will happen very suddenly, like a house of cards falling down. And it might not start in America; rather, an event in another country will set off a spiral that will envelope us and expose us for what we truly are.
And just where truly are we?
News from globeandmail.com
The scary real U.S. government debt
Wednesday, October 27, 2010
Ottawa — firstname.lastname@example.org
Boston University economist Laurence Kotlikoff says U.S. government debt is not $13.5-trillion (U.S.), which is 60 per cent of current gross domestic product, as global investors and American taxpayers think, but rather 14-fold higher: $200-trillion – 840 per cent of current GDP. “Let’s get real,” Prof. Kotlikoff says. “The U.S. is bankrupt.”
Writing in the September issue of Finance and Development, a journal of the International Monetary Fund, Prof. Kotlikoff says the IMF itself has quietly confirmed that the U.S. is in terrible fiscal trouble – far worse than the Washington-based lender of last resort has previously acknowledged. “The U.S. fiscal gap is huge,” the IMF asserted in a June report. “Closing the fiscal gap requires a permanent annual fiscal adjustment equal to about 14 per cent of U.S. GDP.”
This sum is equal to all current U.S. federal taxes combined. The consequences of the IMF’s fiscal fix, a doubling of federal taxes in perpetuity, would be appalling – and possibly worse than appalling.
Our actual debt is not the fourteen trillion dollars that would be scary enough; it is $200 TRILLION.
That isn’t some rightwing thinktank saying that; it’s the IMF.
Japan had a literal meltdown. It is about to have a financial meltdown.
And America will not be far behind.
As you look at the current fiscal situation, with Democrats not just fighting to keep the status quo of reckless and morally and mentally insane spending that will necessarily bankrupt America - and with Democrats literally sitting back waiting to demonize Republicans as “mean-spirited” the moment they try to do what is absolutely necessary to get our skyrocketing spending under control – realize that the United States is necessarily going to explode and collapse just like those reactors in Japan.
Democrats murdered America. It was Democrats who were responsible for nearly ALL of those $200 trillion in debt that will destroy us (it is a simple fact that the Social Security, Medicare and Medicaid that constitute virtually all of our actual debt were all Democrat programs). And it is Democrats who will literally fight to America’s death to prevent the nation from doing what is necessary to fix our situation before it is too late.
Social Security is now paying out more than it takes in. Workers under forty are rightly quite confident that the system will collapse before they get a chance to collect. Republicans want to fix the system before it collapses in order to save it. But Democrats lie about the Republicans efforts (which would kick in slowly and not affect current retirees at all). And Democrats race us faster, ever faster toward the collapse and nightmare that surely awaits America.
We’re a dead nation walking. We just don’t realize it yet.
That’s the hope and change you voted for, America. I hope you enjoy your starving in the soon-coming banana republic your false-messiah president created for you.