Public Debt – Japan is the Worst
So many people only look at the US debt and yell and scream while jumping up and down in their yellow rain coats preaching the end is near. True, the US has the largest public debt, but it is far from the worst for it has the largest economy. That distinction being the worst debtor belongs to Japan and if Japan had to pay its debt back, it would be an economic Tsunami of untold proportions. Here are the facts just from the CIA and it is 2 years old. It is far worse and we may see the final capitulation of Japan in 2013.
|Public Debt Top 20, 2010 estimate (CIA World Factbook 2011)|
|Country||Public Debt (in billion USD)|
|% of GDP||per capita (USD)||Note (2008 estimate)|
|USA||$9,133||62%||$29,158||($ 5,415, 38%)|
|Japan||$8,512||198%||$67,303||($ 7,469, 172%)|
Japan’s Export Debacle: Revenge In China, A Crash In Europe, Offshoring All Around
One of the pillars of the Japanese economy has been its exports. That pillar has been crumbling for years, but the deterioration this year has progressed at a phenomenal pace. At fault: China and Europe. But beyond the noise, Japanese companies have been investing their valuable yen overseas, and it’s making the deficit structural. An ugly combination.
In November, exports (¥4.98 trillion) dropped 4.1% from last year (customs report), while imports (¥5.94 trillion) rose 0.8%, for a total trade deficit of ¥953.4 billion. Through November, the cumulative trade deficit of ¥6.3 trillion, an all-time record, was 185% higher than during the same period last year! Largely due to a breathtaking collapse in exports to China and Europe.
Japan’s endgame nears - Two things have kept Japan’s economy afloat all these years
I read a fact this week that I never expected to read in my lifetime: “The Japanese government is expected to announce Wednesday that the country recorded its first annual trade deficit since 1980″ (see “ End of Era for Japan’s Exports “).
Trade deficit? Japan?
Japan’s economy has been a slow-motion train wreck for the past 20 years. The bursting of the country’s 1980s credit, stock market and real estate bubble would have wreaked more than enough havoc on any economy. But on top of the normal debt deflation that would follow the bursting of a financial bubble, Japan adds the worst demographics of any developed country. Japan is aging rapidly, and its population is shrinking.
Two things have kept Japan’s economy afloat all these years: its healthy trade surpluses and its government’s ability to borrow large sums of money at ridiculously low interest rates to fund enormous budget deficits. The high price of the yen and prolonged weakness in the United States and Europe are doing a fine job of denting exports. And soon, the low interest rates may be under attack.
Anyone reading this article is well aware of Europe’s debt woes. But Japan’s debts make Europe’s look like pocket change. Italy, the most indebted of the major Eurozone countries, started to see its market bond yields reach punitive levels when its debt-to-GDP ratio reached 120 . As a comparison, Japan’s debt-to-GDP ratio is an almost unbelievable 220 percent (IMF).
The only reason that Japan hasn’t had a run on its bonds is that they are all by and large purchased by domestic buyers. As Mauldin explains it in Endgame, “94 percent of all JGBs have been bought by the Japanese.” But demographically, Japan is fast shifting from a nation of middle-aged workers saving for retirement to a nation of elderly retirees liquidating their savings to pay their bills. The savings rate has been in stark decline.
This Country’s Endgame Starts Today - Evaldo Albuquerque (December 17, 2012)
It’s finally happening.
Analysts have been predicting this event for years, only to be disappointed.
And investors who have bet on this event over the past few years have lost their shirts.
The market has defied those predictions for so long that many were thinking it would never happen.
But, as Carmen Reinhart and Ken Rogoff pointed out in their book This Time Is Different, “in the history of financial crises, when an accident is waiting to happen, it eventually does.”
Today, Japan is clearly the biggest accident waiting to happen.
I believe yesterday, December 16, 2012, will go down in history as the beginning of the accident… the beginning of Japan’s endgame.
For investors who make the right move, this could turn out to be the trade of the decade.
The Bug Has Found the Windshield
John Mauldin, the author of Endgame, colorfully refers to Japan as “a bug in search of a windshield” because of its unsustainable level of debt.
Well, the bug has found the windshield… and the windshield is actually a person.
In yesterday’s election, Shinzo Abe became Japan’s prime minister. He said his number one job is to put an end to the country’s eternal deflation problems. He wants to devalue the currency to create inflation of 3% and promote growth through exports.
In other words, Mr. Abe wants the Bank of Japan (BOJ) to print money like never before.
The BOJ seems to be losing its independence. Mr. Abe even suggested the 1998 law that granted the central bank independence from government should be rewritten or simply scrapped.
After years of deflation and numerous recessions (another one just started this past September), there’s just too much pressure for the government to do something. If the central bank has to lose its independence in the process… so be it.
The government is taking over the printing presses. That’s the quickest way to destroy a currency and create inflation, which is exactly what Mr. Abe wants to accomplish.
Why This is the Endgame for Japan
This must be the endgame for Japan.
Debt as a percentage of gross domestic product has reached 237% in Japan. No country has ever crossed the 250% threshold without having a financial crisis.
Will this time be different? I doubt it.
The only reason why the country has been able to accumulate so much debt without having a crisis is because about 94% of Japan’s debt is held domestically. But this source of demand is weakening.
Japan Is The World’s 3rd largest Economy.
The economy of Japan is the third largest national economy in the world after the United States and the People’s Republic of China and is the world’s second largest developed economy According to the International Monetary Fund, the country’s per capita GDP (PPP) was at $34,739 or the 25th highest in 2011. Japan is a member of Group of Eight. Japanese economy can be fore-casted by Quarterly Tankan survey of business sentiment by the Bank of Japan. See alsoEconomic relations of Japan.
Japan is the world’s 3rd largest automobile manufacturing country, has the largest electronics goods industry, and is often ranked among the world’s most innovative countries leading several measures of global patent filings. Facing increasing competition from China and South Korea, manufacturing in Japan today now focuses primarily on high-tech and precision goods, such as optical equipment, hybrid cars, and robotics.