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James Bacon

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  • When Japan Collapses [View article]
    Where does that leave the US Bailout Nation? Right behind Japan.
    Sep 20 08:15 AM | Likes Like |Link to Comment
  • When Japan Collapses [View article]
    In today's Wall Street Journal: Japan's Government Pension Investment Fund, which manages assets worth more than $1.4 trillion, is pondering the idea of investing in emerging-market economies in the hope of gaining higher returns.

    The GPIF has roughly 67.5% of its assets tied up in low-yielding domestic bonds. How low? The yield on the 10-year Japanese government bond is 1.075%. Trouble is, the fund plans to sell a record four trillion yen of assets (about $46 billion) over the next six months to free up funds for payouts to Japan's aging population. As the nation's population continues to grow older, GPIF will have to liquidate even more of its assets -- unless it can find higher returns elsewhere.

    The quest for higher yields is all well and good for the GPIF and Japan's pensioners, but it creates a problem for the central government, which is dependent upon private and institutional savings to bankroll its massive budget deficits. One of the few things keeping the Japan government afloat is the incredibly low interest rates it can extract from its population. If the nation's (and the world's) largest pension fund starts seeking higher returns elsewhere, that means less money invested in low-yielding Japanese government bonds. At some point, the Japanese government will have to accept higher yields in order to sell its debt. Even a small percentage increase on a debt as massive as Japan's -- roughly $10 trillion, equivalent to 230% of GDP -- will translate into significantly higher interest payments and bigger deficits.

    And the death spiral will tighten.
    Sep 18 11:25 AM | 3 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    Stefanos, True, domestic saving has kept interest rates in Japan low... so far. But as Quinn points out, domestic saving is in free-fall. In the not-too-distant future, as an increasing number of elderly Japanese draw down their savings, the country could well enter dis-saving mode. At that point, the central government will be forced to borrow from abroad to continue funding its deficits. Then the depreciation of the Yen *will* matter.
    Sep 17 08:31 AM | 2 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    Oops. The Yamato sank off the coast of Okinawa. Sorry.
    Sep 16 11:08 AM | 3 Likes Like |Link to Comment
  • When Japan Collapses [View article]
    Kudos on a great article. My only suggestion -- your metaphor of Japan as "Titanic" would have been a bit more poetic as "Yamato" (the massive, supposedly invincible Japanese battleship sunk during the battle of Leyte Gulf).
    Sep 16 10:46 AM | 3 Likes Like |Link to Comment
  • America's Shrinking 'Fiscal Space' [View article]
    Gregman2, That's a good question, and I don't know the answer. Pure speculation: There may be an issue with the transparency of the Chinese government data.
    Sep 7 01:30 PM | Likes Like |Link to Comment
  • Grantham: Deflation Has Won on Points [View article]
    EH said: "I don’t think you can add huge amounts of stimulus to an economy without significant malinvestment which would retard longer-term growth rates."

    That goes to the heart of the matter. The only way to lift the economy and raise living standards over the long run is through productivity and innovation. The more the government tries to "fine tune" economic performance, the more it misallocates resources, thus undermining long-term growth.

    The U.S. needs to purge its excess debt, establish a new equilibrium, then start growing again. The alternative is to pursue more Keynesian stimulus, misallocate more resources, crimp long-term growth and postpone the inevitable day of reckoning, which will be orders-of-magnitude more painful than taking our lumps now.
    Jul 20 08:54 AM | 5 Likes Like |Link to Comment
  • On America's $1 Trillion Deficit [View article]
    Look at Table 3 in the Monthly Treasury Statement -- interest payments on the national debt *are* included. I don't think you can justify the $1.7 trillion deficit projection for the year. Not that a $1.3 - $1.4 trillion deficit is bupkiss. It's awful, especially for a year in which the economy is growing. But it's pretty close to what the Obamanauts projected for FY 2010 -- $1.43 trillion -- when they compiled their FY 2011 budget in February.

    The year to watch is next year. The Obama team projected pretty strong economic growth for FY 2011, but it's now looking like economic growth -- and revenue growth -- will fall far short. As a result, the deficit could be considerably larger than the $1.145 trillion deficit projected for that year.
    Jul 15 09:54 PM | 1 Like Like |Link to Comment
  • On America's $1 Trillion Deficit [View article]
    Are you sure that the $289 billion discrepancy between the reported deficit and the increase in the national debt can be explained by the exclusion of interest payments? Even the Obama administration isn't that crooked. (If it is, we're in even bigger trouble than we thought. We can believe no published numbers at all.)

    I would have thought the discrepancy would reflect "off budget" spending, primarily the wars in Afghanistan and Iraq and/or off-budget financing for such gems as Fannie Mae and Freddie Mac subsidies.

    But I'll readily concede that I'm still learning to read federal budget documents.
    Jul 15 11:14 AM | 1 Like Like |Link to Comment