Conclusion
It is a very big deal that Japan is slipping into negative trade territory for the first time in three decades. Last spring I was writing about how the global flow of funds -- the massive tide of liquidity sloshing back and forth -- involved Japan to a large degree. Japan was the hub of a massive carry trade, was buying huge amounts of US Treasurys and, in general, was a vast emitter of liquidity flows to the world.
With its reconstruction costs and now with its trade deficit, Japan becomes a net consumer of funds. In other words, the flow of funds reverses. This represents, at the very least, a change to the global liquidity tide charts.
In Part II: Implications of a Collapsing Japan, we lay out the case for how close to the brink of economic crisis Japan truly is, and why the country is likely to stumble faster and further in 2012 than the shaky situation in Europe that is currently grabbing the world's attention.
Make no mistake. A material retrenchment of the Japanese economy will have profound impact across the globe. One notable example: If Japan has to stop buying US Treasuries to direct capital to its domestic needs or -- even worse -- begins selling Treasuries for the same reason, the Federal Reserve will have to put its printing presses into overdrive to make up the gap.
Got gold?
http://www.financialsense.com/contri...economy-circus
For those who are in a hurry today, the bottom line is that Japan is in serious trouble right now and is a top candidate to be the next black swan. Here are the elements of difficulty that concern me the most, each one serving to reduce Japan's economic and financial stability:
It is a very big deal that Japan is slipping into negative trade territory for the first time in three decades. Last spring I was writing about how the global flow of funds -- the massive tide of liquidity sloshing back and forth -- involved Japan to a large degree. Japan was the hub of a massive carry trade, was buying huge amounts of US Treasurys and, in general, was a vast emitter of liquidity flows to the world.
With its reconstruction costs and now with its trade deficit, Japan becomes a net consumer of funds. In other words, the flow of funds reverses. This represents, at the very least, a change to the global liquidity tide charts.
In Part II: Implications of a Collapsing Japan, we lay out the case for how close to the brink of economic crisis Japan truly is, and why the country is likely to stumble faster and further in 2012 than the shaky situation in Europe that is currently grabbing the world's attention.
Make no mistake. A material retrenchment of the Japanese economy will have profound impact across the globe. One notable example: If Japan has to stop buying US Treasuries to direct capital to its domestic needs or -- even worse -- begins selling Treasuries for the same reason, the Federal Reserve will have to put its printing presses into overdrive to make up the gap.
Got gold?
http://www.financialsense.com/contri...economy-circus
For those who are in a hurry today, the bottom line is that Japan is in serious trouble right now and is a top candidate to be the next black swan. Here are the elements of difficulty that concern me the most, each one serving to reduce Japan's economic and financial stability:
- The total shutdown of all 54 nuclear plants, leading to an energy insufficiency
- Japan's trade deficit in negative territory for the first time in decades, driven largely by energy imports
- A budget deficit that is now 56% larger than revenues (!!)
- Total debt standing at a whopping 235% of GDP
- A recession shrinking Japan's economy at an annual rate of 2.3%
- Renewed efforts underway to debase the yen
