That's right. When Japan hit 1990, the world was still non-correlated. So they were able to export for another 15 years into a healthy world economy--or to many healthy economies. In addition, Japan hit 1990 with a ton of private savings. And the exports that continued for years meant that strong inflows passed through the JPY. So even though the BOJ eventually went to Q.E., global trade was very supportive of the JPY. So there was no problem servicing the debt.
Now let's consider the US. 1. No net private savings in the US compared to private debt--though I will readily admit that Americans have started saving. However, the key concept is "try." Americans have "tried" to start saving. But as a populace it's not easy to save when debt service is high, and we're losing jobs. 2. The US has exports but no where near in proportion to its populace the way Japan had/has. In addition, Japan was surely lucky to enter "deflation" as the rest of the world kept going. 3. The collapse of the Anglo-American banking system obviously leads to one place: inability service government issued debt except by monetization. I don't know why this concept is so hard to grasp. But, global markets have started to grasp it wrt to the UK. How much longer before global markets figure out that Calif going BK and nationalisation of FRE and FNM means future issuance of Treasuries will NOT be backed 100% by tax revenues to Washington.
I think if Europe and the US had created a Bad Bank last year, we might have had a chance to escape a terrible fate. Now I'm not so sure. What I'm certain of is that the Grim Reaper will come for the USD and US Treasuries and this is how it will happen......
The grim reaper will first come for US Treasuries. The foundation has already been laid for this as the data is screaming that a HUGE shift out of longer-dated USTs has taken place by the foreign CBs, who have gone into the short part of the curve. That leaves alot more price-sensitve buyers in the long end.
Then the grim reaper will come for the USD, but I expect the USD to hold up in the initial phase of the US Treasury sell-off. I believe we are there right now. In this phase gold rises while the USD remains firm as US Treasuries start to slide.
I'll make a prediction: whoever bought the 30 year bond at the top of 145.00 (in price) will realize they bought the final move in the 27 year bull market.
And isn't it interesting that bull market started in 1982, where the Nikkei has recently returned to.
If one is bullish (hard thing to be) then here is my other call. Again IF one is bullish: the Nikkei is going to and through 40K. Pretty crazy, huh? Would take at least 7 years, but, it would be mighty and heroic. Again, my call is that one has to ask the question, right here, if such a thing is possible.
My personal view is that the whole world is at much more serious risk to the downside. (me and everyone else :-)
gregor.us
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