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A Mushroom Cloudy Future: In 2016 Japan, Net Debt Per Capita Will Be $140,000

Tyler Durden's picture




 

Sometimes you just have to laugh; or else committing harakiri comes dangerously close to mind. Japan's increasingly terrifying fiscal situation combined with a central bank that is rapidly becoming the laughing stock of the world (though all the other central banks are merely mimicking its actions) is becoming so self-referential (with its almost total domestic ownership of government debt), so short-termist (with its dramatically high short-term funding requirements constantly rolling), and demographically challenged (with its elderly almost entirely reliant upon government transfer payments) that it is hard to comprehend how much longer this farce can carry on. We have previously discussed Japan's WTF charts, but the following collection from Deutsche Bank's Torsten Slok must be seen to be believed. For now - the problem in a nutshell is government-debt per working-age person in Japan will be $140,000 in 2016 - almost triple the rest of the G7.

 

But They are Fiscally FUBAR...

  • Significant Fiscal Deficits
  • Gross Financing Needs Are Remarkable
  • Debt/GDP now above 80% in all G7 Countries
  • Debt/GDP ratio up significantly in Spain, Greece, Portugal, and Japan
  • In most G7 countries short term debt is 20% to 30% of total debt outstanding

 

and Financial Repression and Domesticization has become rife...

  • For Japanese investors JGBs look attractive
  • Foreigners own only 5% of JGBs
  • Japan: Holders of government debt as % of total outstanding. Foreigners hold 5%
  • Institutional investor holdings of government debt

 

which has lead to a nation (people and banks) that are entirely as one connected to this SNAFU...

  • Japanese banks have been increasing their holdings of Japanese government bonds
  • Japanese banks: Deposit growth higher than loan growth
  • Japanese banks buying JGBs for their surplus deposits
  • Japan’s elderly rely mainly on public transfers when they turn 70

 

So - how does this all end? Who knows but the build up of outliers, black swans, bugs in search of windshields, and mushroom clouds waiting to happen is simply remarkable - and there is little doubt that with the right convexity the upside from this debt saturation's final death will be huge. The background can be found here - on how we got here and while Richard Koo can prescribe an ever-increasing budget of fiscal stimulus to plug the deflationary spiral - in the end, there is only one way out for Japan.

Please do not repeat the simplistic response to a Japan 'crisis' bet - that it has ruined many traders - this is simply incorrect in the last decade or more - with JGBs practically unchanged (it has merely been a carry loss) and their broad equity market down over 50%.

 

As SocGen's Dylan Grice once noted, Will 2012 be the beginning of the end of flawed Keynesian economics?

Maybe Japan's will be the crisis that wakes up the rest of the world and triggers some tough decisions on world-wide debt loads. Or maybe not - maybe the Greeks will beat them to it? or the Irish or the UK, or the US? Like banks in 2007, developed market governments today rely on sustained capital markets more than any time in their history. What if they shut?

 

Charts: Deutsche Bank

 

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Tue, 10/23/2012 - 20:47 | 2914600 pragmatic hobo
pragmatic hobo's picture

... but yen is safe-haven ...

Tue, 10/23/2012 - 21:03 | 2914634 3rdgrader
3rdgrader's picture

Why don't they just print the fucking money and pay themselves? What a buch of stupid morons. If I was in charge of the printing press, I sure as  fuck would print the money ( the imaginary national debt )and pay it off (to myself)

Tue, 10/23/2012 - 21:28 | 2914681 markmotive
markmotive's picture

China is the next Japan. China's demographics today look like Japan's in 1990. Tell me that won't hurt.

http://www.planbeconomics.com/2012/09/29/chart-china-today-vs-japan-in-1...

Tue, 10/23/2012 - 21:35 | 2914699 no taste
no taste's picture

Not a shambate, a real debate.  On as this is being posted.  

Please watch: http://rt.com/on-air/rt-america-air/

http://howstupidare.blogspot.com/

Tue, 10/23/2012 - 21:55 | 2914733 jekyll island
jekyll island's picture

US will look like Japan before China.  The traffic in the pattern is getting crowded, isn't it? 

Tue, 10/23/2012 - 22:23 | 2914772 Harbanger
Harbanger's picture

China is still in the process of accumulating their Gold reserves and they're running out if time. 

Wed, 10/24/2012 - 04:23 | 2915141 Heyoka Bianco
Heyoka Bianco's picture

But China's demographics include far more dudes, and dudes die faster, it's a natural fact. Especially during shooting wars.

Tue, 10/23/2012 - 21:32 | 2914695 monkeyboy
monkeyboy's picture

Wow, just wow.

They mustn't be too far away from hitting the reset button.

Tue, 10/23/2012 - 22:13 | 2914762 icanhasbailout
icanhasbailout's picture

enslavement of future generations is a failed model of civilization

Tue, 10/23/2012 - 23:51 | 2914907 OpenThePodBayDoorHAL
OpenThePodBayDoorHAL's picture

No problem-san. One day the Emperor will just go on the radio, explain that the nation is in a crisis, and tell the people to tear up all of their JGBs. Problem solved.

Not sure the Brits, Chinese, and Japanese would give us that option with their USTs though.

Tue, 10/23/2012 - 22:37 | 2914796 SafelyGraze
SafelyGraze's picture

when it's some *other* country, the answer is so obvious:
- go door to door and confiscate everything of value
- procure the account number and password for every person's account, then liquidate
- for anyone with nothing to confiscate/liquidate, put person into forced labor camp and/or liquidate
- censor/control any media coverage 

but when it's your *own* country, this is all so inconceivable 

Tue, 10/23/2012 - 22:47 | 2914813 NIRee
NIRee's picture

The inflation caused by printing and paying off all the debt would make Zimbabwe look like a kid with a typewriter.

Tue, 10/23/2012 - 21:13 | 2914653 Future Tense
Future Tense's picture

Here is how it will end, with a real life currency war walked through step by step with Jim Rickards (hint - it will heavily involve gold):

http://www.ftense.com/2012/10/real-life-currency-war-simulation.html

Tue, 10/23/2012 - 21:56 | 2914738 jekyll island
jekyll island's picture

"Here is how it will end, with a real life war"

There, fixed it for you.

Tue, 10/23/2012 - 22:08 | 2914753 illyia
illyia's picture

 

Will central banks cancel government debt? | Gavyn Davies

FT Oct 14th (There is a wall but it is free to skip over. C&P link.)

http://blogs.ft.com/gavyndavies/2012/10/14/will-central-banks-cancel-government-debt/

Tue, 10/23/2012 - 20:50 | 2914606 alstry
alstry's picture

A Predatory Loan is one that you know or should know can NEVER be paid back.

Thomas Jefferson defined Tyranny is that which government can do but citizens can't....

When government is milking off Predatory Debt to control its people, you know the game is over and its time to milk a new system.

 

http://www.udderworld.com

Tue, 10/23/2012 - 20:55 | 2914619 nah
nah's picture

so scalps are worth 70 grand

Tue, 10/23/2012 - 20:54 | 2914621 mick68
mick68's picture

 

Ironic that a nation known for Harikari would commit economic Harikari with its debt being domestically owned.

Tue, 10/23/2012 - 21:00 | 2914626 TumblingDice
TumblingDice's picture

Temporary taxation: you get it back ten years later with 1% interest.

In a way it is similar to the American system only instead of AAA corporate bonds and CDO in the Japan its only the gov't paper that they sell to those poor pension funds. Realistically it is just the carry risk/reward for the holders so if shit does hit the fan Japan might just peg the Yen. Or just intervene again and hope for the best.

Tue, 10/23/2012 - 21:07 | 2914638 khakuda
khakuda's picture

This whole thing would be a lot more entertaining if I didn't have assets I spent my life building.  I'd get some popcorn, kick back and enjoy the show.  But trying to protect one's net worth -of any size- is quite a bitch in this environment to put it mildly.

It seems like it will end with infinite money printing since that is the course they are taking and nothing seems to be stopping it.  As long as EVERYONE prints like a son of a bitch, then any particularly currency should hold value against the others.  Gold should go up and things like stocks and oil should rise, though they may not rise as much given that the economy will likely suck for years to come.

I guess the other choice is to default, but you can't really do that until you balance your budget and stop creating more debt.  With the US pumping out $1 trillion plus a year, I'm not holding my breath.

Tue, 10/23/2012 - 21:07 | 2914640 i8emallup
i8emallup's picture

The average life insurance coverage per capita in Japan is 150,000.

Wed, 10/24/2012 - 06:47 | 2915211 BigInJapan
BigInJapan's picture

Divide that number by between 10 -20 and you'd be closer to the mark. Your number arises from the fact that all mortgages are insured against the death of the breadwinner - not exactly the same as what you're talking about.

Tue, 10/23/2012 - 21:08 | 2914644 TN Jed
TN Jed's picture

Live streaming video of Third Party Presidential debate...

http://www.youtube.com/watch?v=5EcaX12h46k&feature=g-subs-lsb

 

Also on CSPAN

Tue, 10/23/2012 - 21:39 | 2914705 JustObserving
JustObserving's picture

Thanks.  It is far more relevant and entertaining than the insipid muppet debates we had so far.  Each one of these candidates will be better than the lamestream candidates. And far less corrupt.

Gary Johnson is doing well.

Wed, 10/24/2012 - 05:44 | 2914661 JustObserving
JustObserving's picture

the problem in a nutshell is government-debt per working-age person in Japan will be $140,000 in 2016 

$140,000 per capita in 2016 works out to be $17.8 trillion.  Japan had overseas assets of $7.1 trillion in 2011 and postal savings accounts of $3.3 trillion.  That works out to be $10.4 trillion in assets now which should grow to about $11 to $12 trillion by 2016.  And they have lot more domestic savings than just postal accounts.  Total household assets are $13.2 trillion in Japan now.  Perhaps, Japan may have the resources to afford this level of debt.

By comparison US debt will be $70,000 per capita in 2016 ($51,600 today) and unfunded liabilities will be $468,000 per person ($385,000 today). Or if you choose Kotlikoff's numbers, US unfunded liabilities will be $ 847,000 per capita in 2016 (they are $707,000 now).  In any case, the US will be in equally big trouble by 2016.

Debts are astronomical in virtually every developed economy. They will never be repaid.

Wed, 10/24/2012 - 18:46 | 2917058 rjs
rjs's picture

government debts are never repaid; they're rolled over indefinitely...

if all government debt were removed, the financial system would implode...

Tue, 10/23/2012 - 21:22 | 2914662 tok1
tok1's picture

The BOJ lead the FED/ECB/BOE into QE (ie they did it for 10 years before the others) via their Rinban operation..(weekly mid/long term bond buying that is never sold)..

 

The BOJ will be the first to cancel the debt with the Govt.. (as Zero Hedge had articles on before)..  Its domestic held market so the Govt will explain to domestic instituations this will weaken the yen get exports going ect.. 

Govt that have large foreign investors (ie US) will stuggle to do the same but if they keep going at some point they wll as well..

It will be inflationary.. but at the moment its an illusion that the central bank bond holdings are not just printed money .. that will not be paid back.. but prob 1-3 years Japan will lead the way.. 

 

Tue, 10/23/2012 - 21:18 | 2914665 The Gooch
The Gooch's picture

140,000 curies.

Tue, 10/23/2012 - 22:10 | 2914758 illyia
illyia's picture

Took a minute...

Tue, 10/23/2012 - 21:22 | 2914668 HD
HD's picture

 Situation Normal All Fukushimaed Up

Tue, 10/23/2012 - 21:25 | 2914677 urbanelf
urbanelf's picture

Debt is just teriyaki that we owe to ourselves.

Tue, 10/23/2012 - 21:25 | 2914680 Dr. Engali
Dr. Engali's picture

Some good information there.I certainly hope we can't extend things that far.

Tue, 10/23/2012 - 21:27 | 2914682 booboo
booboo's picture

This is what womb to the tomb nanny state policy since pre WW2 gets you. Like a fall, it's not the trip that gets you but the sudden stop at the end.

 "Cocaine, it's a hellava drug"

Rick fuckin James

Tue, 10/23/2012 - 21:42 | 2914714 HD
HD's picture

That's Rick James Bitch!

Wed, 10/24/2012 - 07:46 | 2915291 Offthebeach
Offthebeach's picture

" Quantitative easing is a hell of a drug. "

Ben Bernanke

Tue, 10/23/2012 - 21:28 | 2914684 ZFiNX
ZFiNX's picture

In 4 years, $140,000 will be $70,000 in real terms at the rate we're devaluing. I see no problem here.

Signed,

The Keynesian

Tue, 10/23/2012 - 21:29 | 2914687 chump666
chump666's picture

I like the Japanese, I like sushi, but prefer drinking vodka with the dish rather than Sake.  All and all Japan is being destroyed by its insane central bank, and it's weak and corrupted goverment.  Very sad as a nation is dying from the inside, low birth rates, collapsing exports, competitiveness finished via China beatdown, net importer of oil Japan WILL hugely effected by energy crisis etc etc etc

Sometimes pain is necessary, they just didn't want to take the pain. Following America into a abyss.

“We must embrace pain and burn it as fuel for our journey.”   Kenji Miyazawa

Tue, 10/23/2012 - 21:30 | 2914688 Cabreado
Cabreado's picture

"a central bank that is rapidly becoming the laughing stock of the world (though all the other central banks are merely mimicking its actions)"

there's the key...

"Will 2012 be the beginning of the end of flawed Keynesian economics?"

this has nothing to do with economics, no matter the flavor.

Tue, 10/23/2012 - 21:33 | 2914697 Jack Burton
Jack Burton's picture

Marc Faber always says "They will print and print and print. Then they will go to war."

Who can doubt that a world full of nations printing like mad and heading for fiscal meltdown will not make a game changer move by going to war on a grand scale?

Faber is correct. War is in the cards. We already see war in Syria spilling over into Lebanon and Turkey. Russia is sick of NATO conquering countries and may back Syria with real military support. The USA is moving it's Naval forces to the western Pacific for the express purpose of confronting China. Japan and CHina are at odds over islands. Israel seeks war on Iran with the USA as their agent to choice to do the fighting. Face it, war is in the air. Looks like 1914, the Guns of August. Governments are notorious for going to war once they have screwed up their economies past redemption.

Go long defense contractors! And buy some gold and guns.

Tue, 10/23/2012 - 21:46 | 2914720 HD
HD's picture

"They will print and print and print. Then they will go to war."

 That's what makes America so great - we do both at the same time. USA! USA!

Wed, 10/24/2012 - 02:36 | 2915050 ZFiNX
ZFiNX's picture

Yeah, I mean, it's not like we're terrible at war. We're just purposefully inefficient in their manufacturing and execution. Like GM and their autos pre-2008. Everything's a business.

Wed, 10/24/2012 - 04:48 | 2915153 Heyoka Bianco
Heyoka Bianco's picture

But are we talking a no-shit international imbroglio, or a endless parade of Cold War redux proxy wars? The latter seems more probable, unless everybody really loses their heads, because then it's NBC strikes for breakfast and everybody out of the water:

1. Japan's population clearly isn't capable of handling a prolonged conflict with China's hordes.

2. Said Chinese hordes are of little use except against Russia, or a move into SE Asia, either likely to trigger said NBC holocaust from somewhere.

3. Neither Russia nor China has the reach to threaten the US by conventional means, and the US, all our great gear notwithstanding, can't sustain an incursion into either country.

4. The EU members have small standing armies and hardly have the industrial base to ramp up modern weapons production (expect perhaps Germany and maybe, maybe the UK and France).
5. The rest of the world is too pissant and piss-poor to matter except as pawns.

All in all, looks roughly likely the world of the 60's

Fri, 10/26/2012 - 05:43 | 2920887 andrewp111
andrewp111's picture

The Mideast and Africa are the perfect battleground.  Everyone will do their fighting there.

And I expect China to make some scientific/technological breakthroughs that we won't know about until their army uses them in a war.

Tue, 10/23/2012 - 21:48 | 2914725 q99x2
q99x2's picture

Used to be able to get away with making that much money by running up your credit cards or taking out seconds on your house. I guess student loans is a good way to go now and then make an exit stage Costa Rica. Probably always a way to sign a contract and get some sucker to give you enough money to live a reputable life on. Those banksters are fools. They'll never get paid back and then people from around the world are going to go after them for their crimes. Banksters have more greed than they got brains. Fuck you Bernanke.

Tue, 10/23/2012 - 21:49 | 2914726 Zgangsta
Zgangsta's picture

This will be a non-issue when it only takes 40 yen to purchase a dollar.

Tue, 10/23/2012 - 21:50 | 2914727 Zer0head
Zer0head's picture

Having just tuned in I am given this image

http://i.dailymail.co.uk/i/pix/2012/10/23/article-2222070-15A5743C000005...

 

and all I can is

What do it mean?

Tue, 10/23/2012 - 22:02 | 2914735 Zer0head
Zer0head's picture

and on a separate and most disturbing note

 

WTF as in Who the Fck could look at this mug for four decades (try 4 seconds for normal folks) and conclude that all is well

stupid dumb ass brits with their bonnie prince charlie, wall to wall cctv etc etc

dumb fckers blind as bats or complicit by their ignorance

 

http://i.telegraph.co.uk/multimedia/archive/02040/saville_2040630b.jpg

 

Oh little Jenny making up stories again are ya, you're some lucky to have been able to spend the afternoon with that man, he's famous don't you know, now go to bed and don't ever say such things again or I'll have your dad slap your naked bum.  And tomorrow if he calls you'll wear that pretty little dress I got you for your birthday and you'll do what ever he asks, understood!

Tue, 10/23/2012 - 22:06 | 2914750 Bennie Noakes
Bennie Noakes's picture

I wonder what Japan's debt/GDP ratio will be in 2016?

And does anyone know what the all-time historical record for debt/GDP is? It looks like Japan is going for the gold in the debt olympics.

Tue, 10/23/2012 - 23:47 | 2914903 sbenard
sbenard's picture

"Japan is a bug looking for a windshield" John Mauldin

Wed, 10/24/2012 - 01:41 | 2915028 ghostfaceinvestah
ghostfaceinvestah's picture

Guaranteed the BOJ will be the first major central bank to officially monetize government debt.  It is a perfect solution.  They want the Yen to weaken anyway.  Kills two birds with one stone.

Wed, 10/24/2012 - 01:54 | 2915033 tok1
tok1's picture

yep thats what I said above.. their not worried no foriegners and domestics are loyal

Fri, 10/26/2012 - 05:39 | 2920884 andrewp111
andrewp111's picture

The English might beat them to it. BOE is already talking about ripping up some of the gilts that it owns.

Wed, 10/24/2012 - 07:07 | 2915239 Quarky Gluon
Quarky Gluon's picture

Well, just because the Keynsian model, in its present form, is inherently flawed, doesn't necessarily mean that the Austrian model is the only or even the best possible solution.  There is a myriad of possible solutions including a modification of the Keynsian and/or Austrian models or entirely scrapping them both.  Just don't get drawn into participating in the Hegelian duel where the powers-that-be put forth just two options, a thesis and an antithesis, that we the plebs have to choose from. 

Wed, 10/24/2012 - 07:44 | 2915281 Charvo
Charvo's picture

Whenever one looks at government debt per citizen, one MUST subtract out the debt owned by the central bank.  This is the reason the Federal Reserve is slowing buying up all the debt of the United States.  Any debt owned by the central bank has basically been extinguished.  Eventually, the United States will have a clean slate when China and Japan sell all their treasuries to the Fed because they are forced to revalue their currencies due to inflationary pressures.

Wed, 10/24/2012 - 13:01 | 2916044 semperfi
semperfi's picture

"it is hard to comprehend how much longer this farce can carry on"

A:  as long as they can get away with it, and not a moment longer

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