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What Does Japan’s Implosion Mean For the Rest of Us?

by John Rubino | January 26, 2010
Dollar Collapse

Standard & Poor’s is threatening to cut Japan’s credit rating, which doesn’t sound like that big a deal in a world where no one’s credit is quite what it used to be. But Japan is a special case. It’s been borrowing like crazy at rates two or so percentage points below what the U.S. pays on 30-year Treasuries. And it intends to further ramp up its borrowing to keep the economy from falling back into deflation.

A lot of people think this is a really bad plan: It is Japan We Should Be Worrying About, Not America, and A Global Fiasco is Brewing in Japan, by Telegraph’s Ambrose Evans-Pritchard, Debt Issues by economist Paul Kasriel, and No Way Out for Japan, by blogger Mike Shedlock

The gist of the argument is that Japan is heading for a “debt trap,” which will unfold as follows: When its pool of domestic savings runs out (as it will in the coming year) the Japanese government will be forced to borrow from foreign investors, who will doubt its ability to pay and demand a higher interest rate. As billions in short term paper roll over at ever-higher rates, interest costs will rise, requiring even more borrowing, which causes investors to demand even higher rates, and so on, until it dawns on the markets that this is a self-reinforcing cycle. Buyers scatter, rates spike, the economy crashes, game over.

Japan, with its aging population, massive government debt, and anemic growth rate, appears to be headed this way sooner rather than later. This is clearly bad for the people who depend on, say, a government pension or interest on government bonds, which includes most of Japan’s population. But what does it mean for the rest of us?

There are three possibilities, one relatively benign, two not:

Read on at Dollar Collapse



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Deflation seems to be the threat

to the USA too, not inflation. "first by inflation then by deflation". just my thoughts. Gold, Silver, & currency shall all be worthless soon...

James 5:1 Go to now, ye rich men, weep and howl for your miseries that shall come upon you.
James 5:2 Your riches are corrupted, and your garments are motheaten.
James 5:3 Your gold and silver is cankered; and the rust of them shall be a witness against you, and shall eat your flesh as it were fire. Ye have heaped treasure together for the last days.
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2Chronicles 7:14 If my people, which are called by my name, shall humble themselves, and pray, and seek my face, and turn from their wicked ways; then will I hear from heaven, and will forgive their sin, and will heal their land.

maybe Japan needs to get a

maybe Japan needs to get a sweet gig like we have.

I hear policing the world brings in big bucks.

and a lot of "Chee Chaw!!!! get them terrorists!!!" back home. (good for moral).

/sarcasm