Turning Japanese? Turning Japanese? I really do think so

 fileintothetrough

That’s why I’m turning Japanese
I think I’m turning Japanese
I really think so

 

I know I cannot be the first to use this analogy, but god bless new wave music & the 80’s, for this apropos song.

With so much attention being paid to the Eurozone, specifically Greece’s departure from it and 165% debt to GDP ratio in tote, its surprising to me that nobody in the MSM mentions the king of living beyond its means. This is none other than the spawn of American ingenuity and the benchmark that all post-war reconstructions whom are modeled after… Japan.

Japan’s ascension from rubble after WW2 to the world’s third-largest economy has been staggering, especially for a country that’s about the size of the state of Montana. With a population that values education as much as anyone in the world, Japan has become a standard to many and no more than those in the corporate world, noted for their dedication to innovation and organization. But if you dig a little deeper, Japan and with all its glitz, glam & refined style; it isn’t all what it seems.

Because, like all fiat facilitated economies, the debt monster is alive and well and the only way to keep from getting swallowed up is to keep pushing, keep innovating and never, ever under any circumstance become stagnant. Well, at least over the last 20 years or so that’s been the case.

This is precisely what happened to Japan in the 1990’s known in Japan and around the world as Japan’s “lost decade”. When the NIKKEI started to free fall and real estate prices started to fall with it, those asset bubbles burst. This left the government in panic mode, so like all bureaucracies do in a panic, they did the opposite of what was right and did what was easy – threw money at it, instead of letting the natural correction run its course.

They began to doll out stimulus after stimulus (sound familiar?), bailed out banks and insurance companies (getting warmer?) with the economy still limping along they said the hell with it and raised its consumption tax 2 percent (doesn’t this sound familiar too?) which subsequently brought on another recession.

After about two decades, and even with stimulus’s keep piling on, Japan’s economy finds itself in a ditch. Since 2011, the Bank of Japan has issued quantitative easing programs in excess of 900 billion alone. With very little to no growth potential, an aging population and an exponentially escalating debt tab; Japan is running on borrowed time.

In a recent interview with Spiegel Online’s Anne Seith, The Bank of Japan’s governor, Masaaki Shirakawa said: “At the moment, the effect of our monetary policy in stimulating economic growth is very limited. The money is there, liquidity is abundant, interest rates are very low — and, still, firms do not make use of accommodative financial conditions, the return on investment is too low.”

Doesn’t this sound eerily similar as well?

Japan is currently using 25% of its outlays just to service their debt. If they raise interest rates, the number will climb dramatically. This is why the US is so fearful of raising its interests rates well. The FED wont entertain raising interest rates until 2014, so imagine all the cheap money printed off until then? If we are to raise interest rates where we already pay 220 billion on basically 0% what will it look like if those rates go up? As I pointed out back in March, via Kyle Bass, for every additional percentage point it will also bring about $140 Billion dollars on top of the existing 220 Billion.

 

 

  President’s FY 2013 budget, Congressional Budget Office

 

Japan’s current debt to GDP ratio is currently 220% according to IMF reports for comparison’s sake the US debt to GDP ratio is about 102% (but that number has doubled in just four years). Japan however, unlike the US, has a few unique circumstances that will either prolong a slow death or escalate to their death at the speed of sound.

Graph: zerohedge.com

 

Japan is one of the few countries that its public finances most of its debt (an astounding 95%). Thus, if they are comfortable with virtually no return on their investing (0.75% average return) into the debt and increasing inflation, they can literally keep financing their own debt as long as they don’t mind saving up to go to the grocery store as if it were a vacation.

The other option(s) is eye popping and absolutely lunacy to say the least. Newly elected Prime Minister Shinzo Abe wants the Bank of Japan to start issuing “unlimited easing” starting with a 120 billion dollar bullet into infrastructure. If that doesn’t get inflation where he sees fit and despite a declining Yen the threats coming out of Shinzo Abe’s mouth, will bring the death of Japan sooner rather than later.

In true, ancient Japanese kamikaze fashion, the Liberal Democrat Shinzo Abe with all his love for easing (hello Bernanke) is threatening to change the country’s laws and actually take the Bank of Japan over: read quite literally, socialization.

So, as you can see, here in the US by all accounts, we are not Japanese yet. Although if we keep up this pace, follow the Japanese playbook and we look at the last four years as any indication; it should tell you it’s only a matter of time before we do.

6 comments to Turning Japanese? Turning Japanese? I really do think so

  • Marvin Motsenbocker

    I agree with you. And finally the Japanese people are waking up. It will be very interesting to see what happens. I spend at least 1/4 of my time there, building my own community (www.yugeshima.com) and finally the people around me are beginning to believe me about gold and silver. Their first response when waking up is wanting to buy more US dollars lol…….

    Yet, there is much more to the story.

    1. Japanese people are the most non-indebted people in the world in that they own their own govt debt, they are the second largest foreign creditor to the US govt., they own many “US” companies and resources here that many are not familiar with. For their size, they have an astounding amount of intellectual property and built up infrastructure. They can go virtually anywhere via electric train and have an extreme amount of built up and paid for (via debt) infrastructure, particularly made out of concrete (rivers/hillsides/seawalls, even public restrooms in uninhabited areas) and railways. 2. the Japanese ethos from the Samurai period on, is to distrust the distant govt/power centers and to rely on local community. Already the renewed focus on local community is evident and people in the countryside have woken up some years ago it seems to me. There is an active locavore community and the large company business people are still humble enough to listen to others for solutions, which they can all adopt rapidly (power shortages were not a news item because they did not exist but only because they changed behavior as requested by the govt) (change thermostat settings, turn off elevators and lights, dress differently, take staggered vacations etc (could we do this?). Since the population is seriously decreasing they are rather ambivalent about not producing all of their own food. I hope that they turn inwards and become self sufficient in food and energy and enjoy their wonderful nature, while the rest of the world goes to war with itself. I think that they were first to deal with a stagnating economy, may be first in currency collapse, and may be first in developing local community based living. So, I agree completely that we may become Japanese, but not just the 1990’s and 2010’s Japanese, maybe even 2020 Japanese. Their advance into the new paradigm may bring some good lessons as well. That is why I have decided to join them.

    • Fletchlives

      Thank you for your response and i think you bring up excellent points. First of all there is no denying the Japanese technology is about as cutting edge as you will find and their infrastructure are far superior to ours. I guess with so much $ flowing into the sector it should be but the commitment is there thou too where here not so much.

      I have always thought that with peak oil being real and it being a finite substance at some point localization is going to be the only way to go. Small self reliant communities. I dont know enough about it but this topic is very interesting and i think extremely important and relevant. It would be nice if you could share more of your experiences and ideas on here, if you were interested.

  • Marvin Motsenbocker

    Thanks Fletchlives
    Please note that
    1. most Japanese (those who live in cities) probably disagree with me and some have. They really are pessimistic now.
    2. Japan has had a very interesting way of evolving to a new paradigm. When nation states became powerful and threatened to turn Japan into a colony, Japan evolved by copying the relevant aspects from Europe. The Meiji Restoration oversaw a major paradigm shift based on the insight and inspired leadership of only a few people. I really think that Japan may do that again. That is, certain individuals who can see the future can decide what direction Japan will go in. I think that Japan can make radical changes without going through an anger phase of burning down cities. Moreover, they love their government MUCH less than the sheeple in America love theirs.
    3. The Japanese people from urban areas that I know seem lost, dazed and pessimistic. The people I know in the countryside however, seemed to have gotten the memo some time ago and know that local community development is the answer because that is where food and energy will come from. In the age of industrial development one factory worker was equal (or more than equal) to one farmer and this was verified by economic rewards. In the new paradigm I expect that one farmer with enough land to produce many thousands of watts of energy will be more valuable than many city dwellers who must consume energy and food but often cannot contribute.
    All this stuff is really vague to me and I confess that I am kind of lost. However I really think that something wonderful will emerge from Japan during this crisis. Of course I am happy to share my probably biased ideas and experiences here. Maybe we can communicate on the 20 meter amateur radio band in the evenings. best wishes

    • TJ

      Marvin, being a long time resident and having spent more than half my life here in Japan, I know where you are coming from and agree with your thinking. Without a doubt, I think the odds are high that there will be an end to the current paradigm in the not too distant future but Japan is unlikely to have the scale of societal disasters that have been seen in other countries.
      In my humble opinion, Japan’s resilience and strong local community ethic will enable it to survive and muddle thru the hard times without destructive civil strife.
      Maybe I am an optimist but Fukushima risks aside, I think ‘we the people’ at the local level will just get down to business with friends and neighbors if and when things come apart and there will be personal rewards. Regards.

  • Marvin Motsenbocker

    TJ
    I will be in Tokyo the last week of this month. Are you in Kanto?
    Marvin

  • TJ

    Yes, outskirts of Tokyo. I will contact you via your site.

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