Japan is the world’s third largest economy and a key trading partner to all of the large powers with a current “debt versus the country’s GDP” at 230% – the highest in the developed world. And if you add in corporate and private debt, total Japanese debt equates to more like 500% of GDP.
Think about that for a moment.
Any given year the country of Japan “owes” (lets average it out) 3X the amount of money that it currently “makes”. That’s what I call a serious credit card limit – totally maxed.
To illustrate just how fragile this situation is ( and possibly foreshadow a likely “similar” situation currently developing in the U.S ) if the base interest rates in Japan where to rise to a piddly 2% ( as the current rate is at 0.1% ) it would have “interest expense on government debt” equate to 80% of government revenue. That’s 80% of the countries GDP ( essentially ) going to pay the INTEREST on outstanding debt alone!
This “tiny jump” in interest rates would cause complete chaos in the bond market, be absolutely impossible to service, and likely lead to full-blown economic crisis.
So what’s the plan in Japan? Seeing that even the current stimulus plan ( 3X as large as th U.S current QE) is “barely” allowing them to hang on? More printing? More government bond purchases?
And of course when all else fails….what’s another great way a government can increase its revenue?
Raise taxes, and essentially make the people “work off the debt”.
Sound at all familiar?
Slaves to the bank. That’s what I see.
The “short Aussie” “post and subsequent trades of the last 24 hours have been spectacular as “indeed” the Australian Dollar took some serious damage overnight. Do I think it’s done? No way….The Aussie’s got a ways further to fall.