Here's a very basic summary of the cover story on the May 25th edition of Business Week.
My summary in brackets. >>Just about everyone (Robert Rubin, Clinton, IMF, Malaysia, etc) all wanted Japan to do a massive tax cut Ronald Regan style. Market was expecting $120 billion in cuts. Instead Japan delivers only $34 billion. The Nikkei tumbles and the Yen gets weaker. Same old story.
Well Japan says it won't do any good to cut taxes because Japanese people still won't spend our country out of recession. But it sounds like this reporter didn't buy this so he went and dug deeper. He came up with a lot of hidden "stuff." But the most significant beyond a doubt was the , "Fiscal Investment & Loan Program." Nickname, "Zaito." The reporter stated a bunch of other problems, but even I, could dispute a lot of them. But this, "Zaito" fund is hard to dispute.
Turns out Zaito is a monster. Spending out of this fund is two-thirds of government spending that goes unreported in the main numbers. Funding comes from private individual Japanese citizens, public pension funds and investments in the state-owned Postal Savings System (must be like S.S. to the US). Well this monster fund has loans outstanding to the tune of $2.8 trillion! So if you add this debt, to what is officially reported ($4.5 trillion), then you have a whooping $7.3 trillion debt. But that's not all. The article claims more is buried in the numbers. So the real estimate for Japan's national debt is, $11 trillion or 250% of GDP! Ouch.
The article also mentions something we discussed over in the semi-equip message board. About how the Japanese may make the problem worse because of the recent restrictions lifted on financial markets. They are going to be free to invest their money in the US markets. If this should happen, it's not good for the Yen (It would weaken the already weak Yen). They couldn't raise interest rates (to strengthen Yen) because of the size of their debt. The government would go bankrupt if they did. Lot's of intricate problems.
Then the article goes on to show how a large portion of their national debt is in big trouble. Basically the gist being that Japan is on the edge of a major, major problem and they have their hands tied trying to figure out what to do without going over the cliff. No wonder no one is expecting any solutions to Japan's aliments in the near future. << End of summary.
In my opinion, the most worrisome part is the Yen vs. US$ relationship. I doubt Japan is going to take a "tumble" off the cliff, but as the Yen gets weaker and weaker due to the above problems, then Japan buys less and less semi-equipment and wireless equipment, and networking equipment, etc. That's my biggest worry.
I originally thought the article was going to be a bombshell story. But it did lack substance in a lot of areas. I believe even the US plays games with our S.S. fund, so the Japanese might fire that right back at Bill Clinton, if this subject is brought up. Nonetheless, even if it lacked substance in some areas, it was still pretty powerful in pointing out a LOT OF PROBLEMS. Not good for Japan, smaller Asian Tigers or ultimately, the US.
Hope this helps,
MikeM(From Florida)
PS I believe this issue of Business Week hits the newstands, Monday? I know I went to the neighborhood Barnes & Noble last night, and it wasn't there yet. It will be interesting to see how much it's discussed after it hits mainstream public. |
