Japan's New PM Warns Country At "Risk Of Collapse" Under Massive Debt Load

Tyler Durden's picture

A week ago Hungary had the unfortunate mishap of telling the truth when it compared itself to Greece, resulting in a massive selloff of the Forint and leading to fresh lows for the euro. Today, it is Japan which is using the very same strategy in an attempt to devalue its own currency. So far it's working. The BBC reports that Naoto Kan has been a little truthier than the G-20 plenary sessions generally allow. We now look for the PM's reign of truth to be even shorter than that of his thousands of predecessors during the past couple of years: "Naoto Kan, in his first major speech since taking over, said Japan
needed a financial restructuring to avert a Greece-style crisis
."Our country's outstanding public debt is huge... our public finances have become the worst of any developed country," he said." Obviously, none of this is news. However, the market certainly does not appreciate when it is told that what it sees day after day in the non-mainstream media is actually the truth and nothing but the truth. What next - Tim Geithner coming out to say that a downgrade of the US is actually long overdue?

More from BBC:

After years of borrowing, Japan's debt is twice its gross domestic product.

"It is difficult to continue our fiscal policies by heavily relying on the issuance of government bonds," said Mr Kan, Japan's former finance minister.

"Like the confusion in the eurozone triggered by Greece, there is a risk of collapse if we leave the increase of the public debt untouched and then lose the trust of the bond markets," he said.

Yet, just like with the SNB's CHF intervention, the market did not respond at all to this, at least so far. Do the HFT algos need a realism translator when they are not focusing on ephemeral data such as consumer confidence (the US consumer is confident that after once again cutting spending, they may eventually buy that 5th iPad at some point in the future). Or does nobody even care about any fundamentals anymore? Is the entire market a bubble chamber where one bout of buying or selling is all that's needed to set off the appropriate algo engines?

"Fiscal austerity measures are long overdue," said Chris Scicluna, deputy head of economics at Daiwa Capital Markets in London.

He forecasts that the government's budget deficit will be 8% of GDP this year, a number that Mr Kan has promised to reduce to zero by the end of the decade.

However, Mr Scicluna said the government does not face any immediate fiscal crisis, unlike some European countries, and probably will not start tackling its budget deficit for at least another year or two.

Unlike Greece or Spain, Japan is a net lender to the rest of the world, to the tune of 2.5% of its GDP last year.

Yet just as Albert Edwards has been pointing out for months now, grey clouds may be forming over Japan's so far glitchless selling of trillions in bonds, courtesy of the relentless demographic shift:

Some 95% of the government's debts are held by Japanese investors, and the government can currently borrow for 30 years at a mere 2% interest rate.

But Mr Scicluna says Japan does have serious medium-term problems related to its ageing population.

As more and more Japanese citizens retire in the next few years, they are likely to start selling their government bonds to pay for their retirements.

This means that Japan will need to start borrowing from the rest of the world, and the government may have a hard time convincing foreign lenders to let it borrow at such a low interest rate.

That's ok Japan, we are confident that the ECB will be happy to buy up all your bonds as well. Just look at how well they performed in the past week when they were the bidder of first and last resort for all sorts of toxic Italian, Spanish and Portuguese paper. Better yet, you will soon be able to pledge your JGBs to J-C Trichet, whose balance sheet is increasingly starting to look like a used Charmin' store.


Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
Mr Lennon Hendrix's picture

The failure will be epic.  Gold and silver is all you can rely on.

Gold...Bitches's picture

Hey man, don't interrupt my concentration with facts and reality.  I'm having fun over here whistling while I walk past the graveyard.

yabs's picture

shocking after all these years I had no idea that 20 plus years of keynesian

nuclear responses to the japanese problem had resulted in nothing more than a huge debt pile

You mean to say Keynes was maybe wrong?

News to me

SteveNYC's picture

Wait until Bernanke blows the US out of the water! We will be Japan, with a broke and indebted citizenry. At least they have that Eastern wisdom of being able to "save" some of what they produce, instead of spend it all as well as spend that which they have BORROWED.

Done, done, and done.

EscapeKey's picture

No, because This Time is Different (tm). Bernanke will implement his Keynes-inspired policies in his own, unique, disastrous way.


B9K9's picture

What many seem to miss, and what gets Mako in so much trouble, is that we were always done. The ending we are rapidly approaching was baked in before we were born.

As Trav observes, we had two choices: full stop in 2008 (which Denninger advocate(d/s), thus bringing on immediate death, or a hail mary attempt aka extend & pretend, that would put off until tomorrow something we don't want to deal with today.

Ben isn't clueless; he, more than anyone knows just how unstable our credit-money system is. It can NEVER contract, it must always grow.

Keynesian theory is a process of justifying a means to an end. Since our credit-money system can never contract, the power-elite needed some rationale in which to advance the notion that public spending should/could substitute for private sector de-leveraging. That is, total aggregate demand.

But it's all for naught. We need some great new invention, something to get the 6b+ people on this globe all moving in the same direction with passion, commitment and risk. Absent that, Ben has no real power. All he could do was facilitate a temporary extension on our collective sentence.

Wyndtunnel's picture

Maybe if they legalized, regulated and taxed the sex trade...and party drugs...and allow people to pay for the right to drive as fast as they want... The world is totally screwed and morals are so, like 18th Century..why not open the floodgates of depravity... it's not like there is that much further to fall..seen any KeiSha videos lately?

trav7777's picture

I also wanna put out there that there is no point or need for a "full stop."

Just hyperinflate.  Absolve the debt, repudiate, forgive, jubilee.  The Fed is trying to trickle its balance sheet up slowly to maintain the return on its own money and keep its bankers receiving "interest" payments which can be translated to real things for as long as possible.

But, the debtmoney system is DONE.  There's no way to pay it all back and why should we?  Who is ALL of the money ultimately owed to?  Well, sheeit, everyone take out a FRN and see what the name is of the fkin BANK that issues them.  It's the Federal Reserve.  All dollars are owed to them.

Just force majeur the bank and forgive all debts owed it.  We lived from 1945 through 1970 on the back of BW, an asset-backed currency while we inflated domestically.  Then, we lived from the Nixon Gold Window to the present by promising to pay back in whatever you could get for a FRN plus interest.  So, the debt FRN would collapse and all the inflation that is threatening to unwind would be perfected.  So what?

Fiat currency is brilliant in its simplicity.  Print it then tax it, like tally sticks, a stable money system.  And the market will bitchslap discount you if you overissue, simple as that...it will be sniffed out. 

But, what this does is takes the power to coin money away from the banks.  The sole source of ultimate power is the ability to cause money to exist and charge an interest rate for it.  Money you never had in the first place.  All this US Z1 credit out there..$55T or so.  It's owed with interest, all of it, every last dollar, to a bank which essentially owes the Federal Reserve it or is a partner in the Federal Reserve system.

Did the Fed have $55T in its original capitalization?  If your answer to this question is not YES, then you have your lyin eyes telling you that banks have lent what they DID NOT HAVE.

Consequently, there is no consideration, the contract between us and the Fed is void.

We have to go back to tally sticks and Real Bills.  Don't worry, these financed trade and growth for centuries. 

Debt won't cut it.  Yes, the future is one of economic contraction along the decline curve of the oil supply.  But it need NOT be all-stop immediate all-out collapse...over what, ACCOUNTING LEDGERS?

An asteroid was not going to hit the earth in 2008.  The Sun did not threaten to go supernova.  What happened was that the liabilities side of a balance sheet crossed the asset side, essentially.  This is all a fiction created by bankers to get us to WORK and give them REAL things for paper and imaginary things.

NOBODY would have bought this 200 years ago, are we that stupid now?  The entire monetary system is now something that used to get kiting lenders and goldsmiths lynched.

What Douchinger fails to understand or maybe he conceals, is that this needs to be the end for paper pushers like him.  It needs to be the end of the FRN, which all his wealth is denominated in.  The Fed and the debt system need to end.  BB did exactly what I told Douchinger he would do, a monetary/QE hail mary.  They have essentially forgiven $2T of the debt owed them by purchasing it, liquifying.  It won't stop it tho, as that will only tide the FRN system over until the liquidity crunch returns and it WILL return and is returning.  The Fed had hoped that growth would return, but it has not and will not.  This is because the Fed does not control energy supply, Mother Nature does.  And she ALWAYS bats last.  And the catcher is telling her your pitches.

Once the Fed liquifies everything or it defaults, its products won't be worth anything anyhow.  The reason is because 0% is as low as you can go - there is NO organic demand for FRNs anymore.  The only demand is transient, cashflow stuff, to service existing debt, and to repay it.  That is deflation writ large.

Either way the system goes bye bye.  Many people cannot live with this concept that there is another reality outside of FRNs and debtmoney.  This is our 3rd central bank, we'll live.  We'll also live without this "credit system."  There will be credit and means of transaction via money will SPONTANEOUSLY self-organize.  Life goes on.  No reason to commit suicide over a piece of paper saying you "owe" this or that.  I can't get over how people would let an accountant rule them by some numbers on a piece of paper.  Just walk and move on with your life.

Even inter arma, people are born, they fall in love, they have good times and bad...life always goes on.  We need to find meaning within ourselves beyond the love of money.

SteveNYC's picture

Very well said. I don't see hyperinflation without a civil war though, or a civil bloodbath, one or the other. Deflation will rule for sometime before this occurs.

I find hilarity in your consistency in referring to Karl as "Douchinger", I don't think you have ever deferred from this label, hilarious!

karateman's picture

LOL! Trav's posts are so well thought out and informative that I look for his posts specifically every few days. How do I find them? I use "douchinger" as my search query! LOL!

nuinut's picture


 We need some great new invention, something to get the 6b+ people on this globe all moving in the same direction with passion, commitment and risk. Absent that, Ben has no real power. All he could do was facilitate a temporary extension on our collective sentence.

Ben is doing a bang-up job, in that context. As far as a great new invention, how about an inevitable, natural and unstoppable one, quoted from "It's the Debt, Stupid":
Literally, Treasuries have only one way they can go from here... down. Compression can continue a while longer, but prices can't go any higher than the ceiling, the 0% ceiling. And the greater the compression, the more explosive the downward move will be when it finally happens.

This is a 30 year trend that has just hit its ceiling during this crisis. It cannot be continued indefinitely. You cannot offer yields below zero, and you cannot stay pinned to the ceiling.

This is connected to everything in today's crisis. Once the Treasury bubble pops, everything else will collapse too. Conversely, any number of unknown things, "Black Swans", could pop this Treasury bubble. It is the US Achilles' heel right now.

Of course Ben is just going to keep printing and loaning "discount" 0% Benny-Bucks to the primary dealers who then carry the Treasury debt on the down-low until the market finally calls him (and them) on it. But how long do you really think this "pushing on the ceiling" can last? The USG has an appetite of a few trillion a year now WITHOUT any inflation and without any black swans. And a good deal of that is structural.

So when will this bubble pop? What will it mean to everything else? And what will the world look like once everything settles down again?

Well I cannot answer the first question other than to say "sooner rather than later." But as this debt collapse happens, gold can and will recapitalize our world with its broken balance sheet built on debt. Gold will, simply because it is impossible for fiat to do it.

The run from US treasuries is the event we are waiting for, as the start of the collapse of debt. 

As to what sparks it, well any number of things could, but the inevitability of the run is the important thing.

It is important to understand that "holding fiat" means not only holding currency, but also anything denominated in it, debt, long term contracts, bonds. Stocks are a little different because they are equity positions. But they too will suffer because a lot of the companies that issue stock have also issued debt into the debt markets. And these debt markets are senior to the stock markets, meaning that if/when a company is liquidated, the stock holders get nothing and the debt holders get a haircut.

So it is all very complicated and confusing, how collapse will play out.


"It's the Debt, Stupid"

mdwagner's picture

The main problem with Keynesians is that they NEVER cut spending when the economy is better to build up a surplus.  The government spends even more when tax revenues are good.  Spending money is crack for politicians.

Zerozen's picture

Much like communism, Keynesianism sounds good in theory only...

Paul S.'s picture

R.I.P. John Maynard Keynes.

bada boom's picture

Please, no peace for that bastard.

bada boom's picture

Wait a second, maybe I am his bastard child.

Popo's picture

One must also note however, that Japan proves the "low interest rates lead to inflation" argument to be specious.


trav7777's picture

Low interest rates in Japan were caused by the decline in economicalness OF Japan.

It is simply critical that people understand this.  Money or credit is a SUPPLY and demand instrument.

As a lender, my price for credit is the interest rate.  If there is high demand, I charge more.  If there is low demand, I charge less.

There is NO organic demand for Yen at 0%.  Hasn't been since they hit the supply-side wall.  You cannot repay even at 0% if you are facing aggregate contraction.

Interest rate regimes can only modulate during times of growth.  And the member banks controlled the money supply, the FFR did not.  But banks cannot lend at 6% if the economic activities out there only produce 5% RoR.  Banks *must* then drop the price of credit below that.  This is what has occurred.

Credit must ALWAYS be priced slightly below realworld yields.

yabs's picture

Yep the entire world is on the cusp of a keynesian debt Nuclear bomb detonation

the fuse is getting shorter by the minute

they can print all they want but liquidity is not the problem

solvency is and thats a huge difference

John Bigboote's picture

Nuclear bombs don't have fuses. You can't light them with a match. They have little red digital numbers that count down to zero and make little beeping sounds every second.

Unfortunately, MacGruber is the only one available to save us and we all know how that ends.

Dr. No's picture

Modern bombs dont tick, they vibrate.... 9 times out of ten, its an eletric razor.  But....every once in a while.....

Bam_Man's picture

Even if it is starting to look like "used Charmin", J-CT's balance sheet still looks a lot better than Ben Shalom's.

Zina's picture

Relax... FIFA World Cup just begun!

exportbank's picture

A government leader that mumbles the truth won't be a government leader for long. 

Luckily, we're never burdened with reality here. All those people getting older are just a pesky nuisance anyway - stop giving them their SS and make them pay for every facet of health care once they turn fifty.


doomandbloom's picture

naah....this is just fear mongering amongst green shooters :)

someone will be there to bailout Japan...

SDRII's picture


RobotTrader's picture

Meanwhile, JGB's are yielding what???


I doubt they are worried....



Sudden Debt's picture

We clearly share the same interests :)

MarkD's picture

Wait........ what were we talking about?

deadparrot's picture

I don't know about you, but I'll take a double D over a triple A any day of the week.

EscapeKey's picture

The interest... er, MY interest... erm, what were we talking about?

(Who's that?)

chinaguy's picture

welcome back RT, I've missed your market wrap-ups.

carbonmutant's picture

Looks like a well rounded portfolio to me...

bugs_'s picture

A fiatastrophe decades in the making!

Segestan's picture

keynesian theory is just a front , a new age mouth piece for an age old theory of ...usury. Of course it will fail,  the foot prints are a worn path in the annals of monetary policy.

Gordon Freeman's picture

"We now look for the PM's reign of truth to be even shorter than that of his thousands of predecessors during the past couple of years"

Naoto Gone...

EyesWise Shut's picture

Excellent movie, brilliant, thanks a lot.

thisandthat's picture

Video is a eugenics tool: pop growth follows resources' availability - when these grow, population grows; when they decrease, pop decreases - it's just strategy of fear disguised as "concern", same as with "global warming", tbtf, "terror", etc.

Running on Empty's picture

Your just pissed because your not " Eugenicaly" qualified.Tell me how it works out for you.

Some the stupidest comments come from some of the smartest people.

thisandthat's picture

Some the stupidest comments come from some of the smartest people.

lmao, dude - that was a smart comment, if I ever saw one ;)

Your just pissed because your not " Eugenicaly" qualified.

Did you're qualification include you're spelling ability?

Ripped Chunk's picture


No, that can't be possible? 

Nihilarian's picture

ZH should take a cue from Fark.com and start adding a ",Hilarity Ensues" to the end of their titles.

suteibu's picture

Hey...Japan has Richard Koo.  What could go wrong?

Lux Fiat's picture

It will be interesting to see how the majority of the Japanese populace take Kan's opening to a wake-up call.  We need more politicians willing to do the same here. 

However, if more did come forward, would the bulk of the American populace listen and get serious, or would they put their fingers in their ears and go "la, la, la, la...everything is just fine....la, la, la...".  Politicians and MSM aside, our capacity for self-delusion is tremendous, particularly when it is a message that seems scary or something we don't want to hear.