Thoughts on Japan

The tragedy befalling Japan is likely to have much wider consequences for the global economy.

Japan is already the single most indebted country in the world as compared to GDP. As a consequence of this earthquake and the destruction that it has caused, Japan will need to sell billions more of sovereign debt into the market. As a result, sovereign funding needs for Japan, the USA and Europe in 2011 are going to be in the $10Trillion range.

Where is this money going to come out of?

Moreover, coming on the heels of already heightened volcanic and seismic activity globally, I should think that the likelihood of more events taking place globally is fairly high.

Too, we’ll have to monitor whether Japan’s rice growing capacity is intact or has been hindered and, if it has, to what degree.

So that’ll probably mean more sovereign debt come flooding onto the markets at a time that sovereigns are already attempting to compensate for lack of funds globally buy ‘buying’ their own sovereign debt.

This is the predicament brought about by a debt based fiat monetary system.

 

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3 Responses to “Thoughts on Japan”

  1. Andy V Says:

    It was my understanding that Japan buys 95% of its own debt.

    so i guess that means the central bank of japan buys the goverment bonds.

    so might be a slightly moot point as in regards to the question of who is going to buy the debt. However this of course would lead to more inflation would it not?

    • guidoamm Says:

      Though it is generally true that the Japanese government has been able to pump up sovereign debt issuance by absorbing domestic savings, I have doubts whether there are sufficient savings left to front this catastrophe.

      But this is all conjecture so far. If Japan should indeed need to turn to outside investors to fund its needs, 2011 might be the year that the global piggy bank gets whacked for everyone. Western funding needs of 10 Trillion is a whole chunk.

  2. ducati998 Says:

    guido,

    I’ve just posted on almost exactly the same line of thought. Japan, up to this point has been self-funding: relying on the incredible production and export of its various industries.

    These industries are in the process of shutting down production. If this spreads to other industries, what is the effect?

    Could it trigger a systemic problem, much in the same way that Sub-prime triggered a systemic collapse in the banking system?

    jog on
    duc

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