Friday, April 6, 2012

Live in Japan? You Owe More Than ¥7 Million Yen - And Your Debt is Skyrocketing

I've been writing a lot recently about the terrible financial situation Japan is in and how I believe that this situation is coming to a head soon, possibly by this summer... I think the best analysis was in Japan's Collapse Will Be Absolute and It Cannot Be Stopped - Here's some Big Reasons Why.

Bugs predicting Japan's economic future

Recently, the Internet chatter about Japan's imminent collapse has been increasing exponentially. Many news sources and many other writers seem to be agreeing with me... Or, perhaps I should say that I agree with them... They are all probably smarter and richer than I am. Why just today, once again, another article was sent to me entitled, The Japanese Party is Ending that warned about a possible hyper-inflation scenario for Japan just around the corner and it could be possible that Bank of Japan is intentionally pursuing a plan to devalue the yen.

Even though I write about these things constantly and think about them a lot. I am just shocked that people I meet are so oblivious to what's going on. You'd think that the average person would care enough to know that their government has put each and every man, woman and child in Japan ¥7,632,897 in debt (as of the writing of this article). If you want to read more on that (please make sure you're sitting down when you do), refer to: Here Comes Europe's and Japan's Debt Crisis - Just in Time for Summer. There you can see a debt clock and other information that should wake you up.

Like I said, I'd say that almost everyone I meet either doesn't understand or doesn't care. I've met three people in the last month who knew what was going on... Trust that I meet a lot of people. Besides those three, most often express that they, "Hope that things get better."

Folks, when it comes to your and your families future and safety and security, "hope" isn't a very good business plan.

On that note, today, one simple lesson in why the Japanese government budget and deficit are such problems for you (if you live in Japan). First the relevant news as reported by Finance Nine:

TOKYO — Japan passed a 90.3 trillion yen budget on Thursday, with about half the spending expected to be financed by new bonds that will add to Japan’s massive debt mountain.
Local media have reported that spending for the 2012-2013 fiscal year may be Japan’s highest ever, reaching more than 96 trillion yen when including extra public spending such as funds for rebuilding the nation’s northeast after last year’s earthquake and tsunami disaster.
About 49% of the budget would be financed by issuing new bonds, a plan fiercely contested by opposition lawmakers who are aiming to push Prime Minister Yoshihiko Noda to call snap elections, according to reports.

For those of you who are versed in this sort of thing and understand what bonds are and how much of a clusterf*ck situation Japan is in, you can stop reading this post right now and go back to doing something useful. This post is an explanation for the total and complete layman who doesn't - or can't - comprehend what this news means to them. Like I said, when I talk to people out and at work, I'm getting the impression that far too many people in Japan see this sort of news and these sorts of numbers and it just goes completely over their heads. 

This article is for people who don't understand why they should be near panic! Let me explain two very important points about this that you need to know. 

The two important points in this article are the amount of money at ¥96 trillion yen and an understanding of what a bond is. That's today's simple lesson in why the Japanese government budget and deficit are such problems for you (if you live in Japan). 

A trillion is a one with fifteen zeroes behind it. ¥96 trillion yen is this: ¥96,000,000,000,000,000. In US dollars that translates to: $1,160,000,000,000,000.00.

A lot of money. Too much too comprehend, isn't it? So let's now go to what a bond is. The simplest and best explanation for bond I could find was at and the article is: What are Bonds and how do they work?
Most of us have borrowed money in our lives, be it to finance our college education or to ask the bank for a mortgage or auto loan. So just as people need money, so do companies and governments. One option for this money is to issue bonds in which thousands of investors each lend a portion of the capital needed.
What Is a Bond?
In essence, a bond is nothing more than an IOU. The organization that offers the IOU (the bond) is known as the “issuer,” while the purchaser is the “investor.” Because nobody would loan his or her hard-earned money to an unknown party for nothing, the bond issuer is required to pay the investor interest payments, which are made at a predetermined rate and schedule.
Please read that "What Is a Bond? again, "a bond is nothing more than an IOU." 

IOU's? Like in "totally useless and worthless pieces of paper?" This in a country that has a greatly aging society that is not saving, but spending savings and cashing in on bonds bought in the past? Who does the Japanese government think they can sell these bonds to? Working Japanese, the traditional customer for this market is now an elderly retired Japanese. Does the Japanese government think that they can sell these bonds to foreigners? 

Selling these bonds to foreigners is an interesting option. Problem is that foreigners will want competitive rates as Japan's rate are way below other countries. The foreigners will want much higher interest rates on those bonds bond yields. Problem with that is if Japan's interest rates rise to just 2% the interest payments on Japan's debts will surpass the entire expected tax revenue of ¥42.3 trillion yen.

Now, understand that the Japanese government and this country's gas tank is empty and running on fumes. The government wants to keep the party going and is expecting you - yeah, you if you live in Japan and are reading this - to finance an IOU to somebody in order to pay the debt on our debt and keep the good times rolling...

No problem, right? Not only do they want you to buy the IOU, when the money to pay back that IOU comes due, and they don't have it, you'll be forced to pay that back too.

I hope you have an extra ¥8 or ¥9 million yen in your piggy bank for each and every person in your family to pay for your high life and profligate spending!... But no problem, right? 

Let's just hope things get better.


Santitiri said...

Just as I thought it would happen... But this is just the beginning Mike and my 6th sense tells me the world is closer than we think. What happnes in Europe (Spain, Greece, Italy...) and in other places we do not write about is just a series of linked events that sooner or later will affect each country. Global means also that the problems are global, not just cornered in one part of the world. This is what I think.

Anonymous said...

Reminds me of my state goberment in the unitedstate. As I recall, they have a constitutional amendment requiring a balanced budget (or something like that, I stopped paying attention to them) so what do they go and do? They issue a ton of bonds and say that's not a debt.

Also, I wonder, is it possible to export hyperinflation?
After all the unitedstate (and Japan?) has managed to export regular run of the mill inflation.

The game hot potato comes to mind.

- clark

Anonymous said...

It's a wash! Mike, you just don't understand economics. That nice Mr. Krugman explains that "it's a wash" because all the debt holders are Japanese so you see there's nothing to worry about.
More on the Burden of Debt, NYTimes, 2011.12.28:
The government is now deeply in debt — but the nation has not directly gotten any poorer: the public, in its role as taxpayers, now owes 500 percent of GDP, but the public, in its role as investors, now owns new assets equal to 500 percent of GDP. It’s a wash.

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