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The sequence of catastrophes which has afflicted Japan can only fill us with empathy for the Japanese people. However, Western deadbeat debtors cannot afford to concern themselves only with expressing their official condolences to Japan. Rather, they need to be focusing upon their own financial survival.

With Japan’s era of near-zero interest rates now stretching into decades, Japanese citizens were forced (by their own government) to invest outside the country. Countless trillions of yen flowed into the economies of other nations (and were converted into those local currencies). With Japan facing a massive reconstruction effort, those trillions of yen are now required at home  – to attempt to mend the domestic economy, and the nation of Japan itself.

Over the short term, two trends dominate. One is general downward pressure on global asset prices as Japanese investors liquidate those foreign assets. The second is upward pressure on the yen as assets previously held in foreign currencies are converted back to yen – causing a short-term spike in demand for this worthless paper.

Thus we now have the peculiar situation where one of the worst of the deadbeat debtors – Japan itself – is seeing a spike in the (relative) value of its currency, despite the fact that over the longer term the direction for the yen must be lower, not higher.

Japan was gripped with enormous structural deficits before these series of tragedies struck. Thanks to the horrific damage to infrastructure, Japan faces massive spending requirements, even as its capacity to generate wealth/income has been severely impaired. It highlights the unforgivable negligence and recklessness of Western “leaders” in creating these structural deficits in all of our economies – with the consequence being that none of our economies is prepared to withstand any sort of major catastrophe in our own backyards.

The size of Japan’s already-huge deficits can only soar higher. This effectively cuts Japan off from international debt markets, as Japan’s ability to even service these higher debt-loads is seriously in question. Longer term, debt-default now seems a virtual certainty for Japan. Thus, the only way Japan could engage in any foreign borrowing is through much higher interest rates (to compensate lenders for greatly increased risk). However this would drive-up the costs of servicing Japan’s existing debt by such an extreme amount that arguably any and every dollar which Japan could borrow would simply be consumed in rising interest payments.

Effectively, Japan can do nothing but print money by the trillions (the “Bernanke solution”), while its economy sinks further and further into debt. This is now a scenario which could quickly and easily degenerate into a hyperinflation spiral, as it now becomes very similar to that of Weimar Germany.

With Weimar Germany, it was the combination of huge, existing debts and future spending obligations which together were impossible for that economy to continue to manage which precipitated hyperinflation. It is the combination of gigantic debts and the future expectations that things can only get worse which destroys confidence in a currency. And as with all scams, the inherent “con-game” (i.e. confidence game) of fiat currencies can only continue as long as the “chumps” (i.e. us) can continue to be duped into believing that all this worthless banker paper has “value”.

As with any cheap magician, once the “illusion” has been dispelled, the “magic” (i.e. the con) fools no one. Thus our current generation of “cheap magicians” (i.e. central bankers) are nearing the end of their era. Some of the chumps (i.e. those of us investing in precious metals) have already seen through the stealing-by-dilution inherent in their reckless, fiat money-printing. Every “un-backed” paper currency ever created by bankers (over a thousand years) has been destroyed by those same bankers – through excessive dilution.

As with any Ponzi-scheme, the fiat-currency scam not only requires continuing infusions of “fresh paper” to pump it up and keep it from imploding, it requires exponentially increasing quantities of paper to forestall collapse. With Japan’s own printing press permanently running white-hot, much of the paper used to prop-up the Western fiat Ponzi-schemes emanated from Japan.

That source of funding has not only abruptly dried-up, but Japan will be subtracting previous injections of fiat-paper which were used to prop-up the global house-of-cards. This need for additional funding will hit Western economies even if Japan’s disasters don’t cause a general slow-down in global economic activity. If a slow-down does materialize, Western funding problems will be immediately and greatly amplified.

Thus, while the parameters are not as extreme, every Western debtor nation will be facing a “squeeze” on their own debt/fiat currency Ponzi-schemes. All of these debtors face the same choice as Japan: crank-up the printing presses to an even more reckless level, or attempt to “borrow” more money – in a world with no surpluses.

The standard line from the U.S. propaganda machine (for years) is that “surplus nations” (like China) are “forced” to plow their money into funding Western debt, to “recycle” those surpluses, and prevent the strength of their domestic economies from driving up the value of their currencies (punishing exports).

China just reported a trade deficit in the statistics for the most-recent month. How many U.S. Treasuries or Japanese bonds will China be “forced” to purchase with less than zero dollars?

Like Japan, Western deadbeat debtors can ratchet-up the money-printing on their printing presses to a still more reckless extreme or they can try to borrow more money. Like Japan, the massive debts and even more massive structural deficits of these economies mean that few if any of these governments can handle an increase in borrowing – and still pretend to be solvent. Like Japan, any incremental borrowing can only drive their borrowing costs sharply higher. Like Japan, the most-probable result is that higher interest payments would consume any and every new dollar of borrowing (plus more?).

This means that, like Japan, Western governments really have no “choice” at all: they will simply crank-out mountains of worthless banker-paper at even greater rates – and pray that their economy is not the first one to “go Weimar”.

If ordinary citizens were previously oblivious to this slow-but-perilous descent toward the economic Armageddon of hyperinflation, they will not remain so for much longer. The “Titanic” known as the Japanese economy has now clearly struck an iceberg – and will take on water rapidly. It is only a matter of months (perhaps weeks?) before Western citizens realize their own economies are no more “seaworthy” than that of Japan. On that day, the countdown to hyperinflation begins.

In accordance with the old, Chinese cliché, Japan’s “crisis” represents an “opportunity” for those of us outside Japan. The very temporary weakness in commodity prices – and most especially precious metals – represents an unambiguous “buying opportunity”: a chance to rid ourselves of large amounts of banker-paper, and funnel that wealth into “hard assets”.

Even hard assets in the form of “paper equities” are vastly preferable to any form of banker-paper – providing those equities genuinely represent “hard assets” rather than simply representing more banker-paper (like shares in any financial institution). Naturally, any sane investor will be dumping every cent they have invested in the bond market.

Bonds represent the “worst of both worlds” in the realm of investing. Not only are they instruments which represent debts that will never be repaid, but they are denominated in utterly worthless banker-paper. The only thing preventing the global bond-market from earning the title of “The Mother of all Ponzi-schemes” is the existence of the banksters’ $1.5 quadrillion derivatives market.

While nearly any commodity (except uranium) should be considered an attractive buy at current valuations, for many reasons precious metals remain the ultimate asset class: representing not only two of the rarest (i.e. most “precious”) commodities on our planet, but they represent the only “good money” in a world filled with “bad money” (fiat paper).

There are some commentators who believe the serial catastrophes in Japan will become a national “rallying point” which unifies the Japanese people into finally “fixing” their badly damaged economy – as they repair their badly-damaged nation. I sincerely hope those forecasts are correct.

Outside Japan, one can only hope that these disasters are a sufficient “wake-up call” to rouse Western citizens from their collective, propaganda-induced stupor. The “don’t worry, be happy” propaganda that “things are getting better” has all been lies.

In the U.S., Bernanke’s famous “green shoots” have withered. After promising an “exit strategy” for more than a year, all that Bernanke actually produced was nearly $1 trillion more in new money-printing. Now, with one of the biggest purchasers of U.S. paper permanently out of that market, we have Federal Reserve clowns resurrecting their “April Fool’s joke” from last year: that the Fed has “finished” its “quantitative easing”.

No one asks Helicopter Ben who will buy the $trillions in new U.S. debt. Media-parrots have been well-trained not to ask Bernanke any questions for which they know he has no answers.

If it was obvious before these latest catastrophes that precious metals represented the best refuge from the monetary depravity of bankers, and the reckless incompetence of our government “leaders”, it is crystal-clear today. Investors should immediately take advantage of the “sale” on precious metals, as (unlike banker-paper) “quantities are limited”.

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written by Jeff Nielson, March 19, 2011

Thanks for the link Redpill. I have a lot of respect for the work done by that site, so when I see them saying very much the same things as myself, then this is very encouraging.

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written by Jeff Nielson, March 19, 2011

Goldeneconomiser, Canada is another nation which USED TO have "trade surpluses" every month until the collapse of the U.S. economy.

There are undoubtedly a few smaller economies (with small surpluses), and very possibly Brazil and Russia have modest surpluses as well. However, the problem is that many of THOSE governments have already started EXITING their dollar-holdings - and would obviously NOT be buyers for any of this unwanted paper.

Regarding the "bond circus" which you spoke of between The Three Amigos (U.S./UK/Japan), it can and will continue. On PAPER, the UK will still buy U.S. bonds, the U.S. will buy UK paper, and the UK will buy Japan paper - except that in the REAL world, these nations are simply printing-up money and (pretending to) "buy" their own paper.

This has obviously already been going on for well over a year, so only the SCALE of the fraud will change.

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written by Jeff Nielson, March 19, 2011

Abperusdisvet, yes, the last of the money-printers with EXTRA money to burn is now gone. However, the U.S. has ALREADY been playing a "pretend game" in its bond-market (i.e. PRETENDING their are "buyers" for most of its bonds) for several years.

All that this means to the U.S. government (at the moment) is that the bond-fraud grows larger. The QUESTION is when will the U.S.'s brain-dead creditors figure out what is going on (at which point the PANIC to escape the U.S. dollar will begin)?

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written by redpill, March 19, 2011

The people of GEAB also think, that there will be a meltdown of the US Treasury Bond market:

http://www.leap2020.eu/GEAB-N-53-is-available-Global-systemic-crisis-Second-half-of-2011-Get-ready-for-the-meltdown-of-the-US-Treasury-Bond_a6091.html

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written by goldeneconomizer, March 19, 2011

China is not the only one who recently reported a balance of trade deficit in the most recent month reported.

http://online.wsj.com/article/...05678.html

In January, Japan's first trade deficit in nearly two years weighed on its current-account surplus, which fell 47.6% from a year earlier in January, the Ministry of Finance said Tuesday.

The rising cost of petroleum imports (and increased imports from China) put Japan into a trade deficit for the first time in 22 months, and now after the tsunami, they will be needing even more oil (and Chinese building materials) than before. Apparently, the Japanese economy was beginning to show some cracks even before the quake.

Also, this will put a crimp in the revolving bond circus between the US, UK, and Japan. Japan has been a large buyer of US Treasuries for years, just as the US has been a large buyer of UK sovereign bonds, and the UK has been a large buyer of Japanese govt bonds, the net effect on their balance sheets being that each country has been purchasing their own bonds, but leaving the false impression that these worthless IOU's are somehow valuable because they are demanded by international buyers.

I don't see how this could possibly continue, since Japan was the only one of the three countries which had been running a balance of trade surplus, but that came to an end even before the quake.

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written by apberusdisvet, March 18, 2011

Given that the Japanese own $800B of USTs, and it's likely that they will repatriate most of it, there's almost no one left to buy US funny money. China and the Arab sovereigns are going to PMs or commodities. So the US is left with the circle jerk of the PDs, the FED and the Treasury, while the middle class incrementally disappears. June will be an interesting month; that is if we last that long.

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written by subscriber, March 18, 2011

As I understand it, Japan really does "owe it to themselves" to a great extent. The thrifty Jap citizens have bought JPG bonds and financed their own deficit spending. At the same time, the JPG has bought our bonds with some of that money, often in an attempt to manipulate their currency value.

So, the JPG does have the option of cashing in their USTs for ready cash, but that will in turn mean a further boost for the JPY and a further weight on the US dollar and UST markets.

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written by Jeff Nielson, March 18, 2011

Null, as your combination-question points out, the dynamics are fairly complicated. Where Japan differs from the U.S. is that there are still large holdings of wealth among INDIVIDUAL Japanese.

This is why Japan has been able to weather its two-decade depression as well as it has - because of large reserves of private savings. Now those reserves are being pulled back home. If not for the increased spending requirements, this "repatriated" wealth could fully fund the borrowing of Japan's government.

However, with the MASSIVE spending needs created by these catastrophes, it's inevitable that part of this reconstruction effort will be "funded" just by printing money.

U.S. consumption is becoming an increasingly less-important variable for Asian exporting nations for two reasons. After 3 years of collapse in U.S. imports, many of these nations have ALREADY found new buyers for their products - who will actually PAY for those goods with something other than worthless IOU's. Meanwhile, rising wealth/income levels in these economies means that DOMESTIC consumption has become more important.

In the case of Japan, there is no problem with "markets" for its goods, situated next to China. Rather, Japan's problems will be on the supply-side - trying to continue their manufacturing despite massive infrastructure damage.

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written by Null, March 18, 2011

Jeff, could you clarify how Japan can be drowning in debt at the same time that it owns a huge chunk of the $14 trillion US debt? It is both a debtor and a creditor.

I assume this debt can't be shuffled around because this ponzi scheme only goes one way. When you unwind one half of the the debt then this triggers a deflationary collapse.

If the US tanks because Japan pulls back all its debt holdings, then US consumers no longer buy Japanese exports, which wrecks the Japanese economy. The same situation holds for China. This is why this charade has continued for so long. Do you agree?

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written by Jeff Nielson, March 17, 2011

Subscriber, even a few years ago I would have viewed this as more of an "open question" myself.

Instead, after seeing these economies slowly-but-steadily collapsing under the weight of their own debts BEFORE the Japan catastrophe, I see no possibility of "coping" with this scenario - simply more panic money-printing, which will (ultimately) SPEED-UP not slow down the final collapse of the Deadbeat Debtors...

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written by subscriber, March 17, 2011

You have to ask yourself just how resilient is the Japanese, US and world economy? As with Hurricane Katrina in 2005, the ability to cope and at least semi-recover is amazingly strong. What looks like the End of the World today can recede into the past within a few years, leaving things more or less as they were. Massive objects in motion are very hard to stop or steer. . . . Also hard to get moving again.

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