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Japan reports holding a net $3.19T in foreign assets at the end of 2011, hanging on to its...

Japan reports holding a net $3.19T in foreign assets at the end of 2011, hanging on to its position as the world's top creditor nation. The position marks a rise from 2010, which may also dampen expectations on China overtaking the Japanese as the number one creditor anytime soon.
Comments (22)
  • Papaswamp
    , contributor
    Comments (2178) | Send Message
     
    I'm curious...how exactly is one a creditor when one is itself +200% debt to GDP? Japan's debt far exceeds it's ever degrading demographic to pay back what it owes it's creditors, yet has the ability to loan out. Talk about a global ponzi.
    21 May 2012, 10:14 PM Reply Like
  • tunaman4u2
    , contributor
    Comments (2743) | Send Message
     
    live by the ponzi, die by the ponzi

     

    It works till it doesnt is the mantra

     

    History books will look back on this ponzi & say DUH !
    21 May 2012, 10:26 PM Reply Like
  • Excalibur5
    , contributor
    Comments (199) | Send Message
     
    In answer to your question, Japan still practices a type of capitalism called "credit ordering", which allowed Japan to pull itself up by its own bootstraps in the years immediately after WWII. Japan's credit ordering system is essentially a ponzi scheme that is now falling apart. Japan has been in self-destruct mode for many years now. I recommend reading Dogs and Demons by Alex Kerr for a critical examination on how Japan has been destroying its own culture, environment, and economy since after WWII. I discovered the book in a used book store, but I believe the entire manuscript can be read here: http://bit.ly/J9HLxa
    Having lived in Japan as a child it saddens me to now witness the gradual demise of the Japanese nation.
    21 May 2012, 11:28 PM Reply Like
  • Dopamine
    , contributor
    Comments (363) | Send Message
     
    thank you for this link..my partner just now arrived in Narita to search for investors in a US direct sales company....and I am sure he will enjoy your suggestion of reading material...many thanks..it already seems like a facinating read.
    22 May 2012, 01:54 AM Reply Like
  • winningtrader
    , contributor
    Comments (2476) | Send Message
     
    But ask Krugman & co and they will tell you that THIS TIME IT IS DIFFERENT. Wow, when Japan blows up, it will blow up like there is no tomorrow. Timing is uncertain and maybe it will be gradual and not a dramatic blow up but nobody knows.
    22 May 2012, 05:09 AM Reply Like
  • Papaswamp
    , contributor
    Comments (2178) | Send Message
     
    Ex5,
    Looks fascinating! Don't know if that is the whole book (320pgs), but found it on amazon too. http://amzn.to/MgymXM .
    22 May 2012, 07:01 AM Reply Like
  • divinecomedy
    , contributor
    Comments (466) | Send Message
     
    Nah, years/decades from now there will be an even bigger ponzi.
    21 May 2012, 10:41 PM Reply Like
  • Tack
    , contributor
    Comments (12739) | Send Message
     
    Yes, Japan is about to self destruct. That's why the yen is bid up to near all-time highs.
    21 May 2012, 11:42 PM Reply Like
  • nullid2002
    , contributor
    Comments (22) | Send Message
     
    Tack,

     

    Please articulate your thoughts on the Yen/JGBS. Why would Yen be bid up?

     

    Thanks.
    22 May 2012, 12:13 AM Reply Like
  • Tack
    , contributor
    Comments (12739) | Send Message
     
    null:

     

    I honestly have no insight into JGBS and don't track Japanese securities or bonds. My only point was that currencies don't get bid up, relative to other currencies, if one expects their issuers to collapse anytime soon.
    22 May 2012, 12:20 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2569) | Send Message
     
    The Yen is perpetually in short supply because Japan has tended to run a trade surplus. When a Japanese trade surplus is paid off and the proceeds are brought home to Japan, foreign assets get converted to Yen. Japan illustrates the fact that national debt denominated in the currency of that nation doesn't matter. What matters is whether that nation has a net trade surplus or a net trade deficit. That's the only true measure of debt for a nation that controls its own fiat currency. Think about it: if everyone else owes you more in goods and services than you owe everyone else, you're not in debt, you're a creditor -- regardless of what your internal bookkeeping says.
    22 May 2012, 02:01 AM Reply Like
  • ChicagoB
    , contributor
    Comments (63) | Send Message
     
    Japan's government debt is owned by its citizens. In comparison, much of the U.S. government's debt is owned by foreigners. If Japan taxes its citizens to pay for its debt, then it goes back to its citizens. So, it is a self-contained loop. In the U.S., we need China and others to fund our budget deficit. So, our interest payments go out of the country.

     

    Although there are significant issues in Japan with its government debt, the liability is not national, since it is owned internally. U.S. government debt, by contrast, is a national liability. Japan's economy has been stuck in neutral for 22 years. The Nikkei stock index peaked in 1989 at 38,915. Today, the Nikkei is 8,729.29. So, Japan has already endured a muddle-though economy with frequent recessions, which is one of the outcomes I predicted for the U.S.

     

    Japan has two possible options. The first is to go through an extreme contraction of government spending, which its citizens are more likely to bear than the citizens of any other country. The second option is to print the money and devalue the Japanese yen. One U.S. dollar was equal to 125 yen just five years ago; today it is 79.55 yen. The yen is nearly at all-time record strength and can afford some devaluation. Devaluation would also make Japanese exports more competitive, something the Japanese love.
    22 May 2012, 04:28 AM Reply Like
  • kypsterx
    , contributor
    Comments (13) | Send Message
     
    Just to clarify... recently Japan's trade balance has actually been negative (5 of the last 6 months), however their current account balance still remains positive and that it the broader measure of capital flows (trade balance is a component of current account). Although, the current account remains positive, it is on a downward trend and when it turns negative, Japan will be in a real serious situation since it will be more reliant on foreign financing to service its debt. The decision to shutdown all nuclear power plants has made matters only worse due to the significant increase of LNG that must be imported into the country.
    22 May 2012, 05:34 AM Reply Like
  • Papaswamp
    , contributor
    Comments (2178) | Send Message
     
    San Deigo,
    If you are correct, then the dollar should be worth negative value...since the US is dead last.
    http://1.usa.gov/sy06tU
    Though I follow your logic, Japans, account balance (~$123 Billion) - debt (~$10 Trillion) does not exactly come close to a positive balance sheet. Their degrading demographic makes their future ability to make up the difference physically impossible.
    22 May 2012, 07:27 AM Reply Like
  • Papaswamp
    , contributor
    Comments (2178) | Send Message
     
    Chicago,
    Actually Japan is #6 in the world for debt held externally. http://bit.ly/JCqzWe
    I disagree with your assessment though. Regardless of where debt is held, it is debt. Due to Japan's demographic issue (severe degrade) it means each citizen is owed a larger amount, yet they must now produce more to make up the difference, but are at the same time being taxed more. The govt is forcing it's people to fot the bill twice.
    The reason the world is 'ignoring' the situation is a Japanese economic collapse would take the majority of markets with it. As tunaman said above, this works until it doesn't.
    22 May 2012, 07:36 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2569) | Send Message
     
    ChicagoB, the majority of U.S. debt is owned by the U.S. But you're right that a substantial remainder is foreign owned.
    22 May 2012, 09:19 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2569) | Send Message
     
    kypsterx, yes, this is why Japan looks to be in trouble...not because of its national debt but because of its deteriorating trade balance. Demographics probably play a big part in this.
    22 May 2012, 09:22 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2569) | Send Message
     
    Papaswamp, Japan's situation wrt trade balance is deteriorating. It's a big worry. I thought about mentioning that in my post but then decided it would make for too long of a post. There's also an anomaly that I omitted: After Fukushima, Japan needed to rebuild. To do that, the Japanese liquidated foreign assets, converting them into Yen which they could use to pay domestic workers. That tightened the supply of Yen, sending it up in value.

     

    The U.S. trade imbalance is a huge worry. It got way way out of hand during the housing bubble as people took out 2nd mortgages and flipped houses, using the "proceeds" to buy imports from China. (This, btw, was when and how the U.S. money supply actually expanded, not as a result of QE, but that's another topic!) You're right that the USD was never adequately punished for that. The likely explanation would seem to be that people outside the U.S. are hoarding dollars -- in much the same way and for the same reasons that goldbugs w/in the U.S. hoard gold. It's perceived as a safe haven.
    22 May 2012, 09:39 AM Reply Like
  • Tack
    , contributor
    Comments (12739) | Send Message
     
    SDNS:

     

    You harbor common misconceptions about U.S. trade balances and their impact.

     

    When a country has the world's reserve currency and is likewise seen as the most attractive and safe place to invest capital, as the U.S. enjoys, positive trade balances are not only unnecessary, they're counterproductive to global commerce. It's the balance of payments, which must be considered, not the trade balance in isolation. Why is that?

     

    The U.S. attracts huge flows of capital from around the world in the form of investments, savings, loans, etc. If these monetary inflows are not offset by U.S. investments and spending abroad, then capital piles up on U.S. balance sheets and in U.S. cash accounts (what we see now, in fact), underutilized and unflowing, reducing global monetary velocity, thereby retarding global economic performance. It's imperative that the U.S. recirculate those incoming flows by moving capital back in every form, including trade, to foreign countries.

     

    It's neither possible nor desirable for all countries to try to be net exporters. The U.S. should enjoy its favored-nation status, which allows us to receive favorable prices for the labors of others. This provides the U.S. with a surplus of capital to invest or spend.

     

    If the U.S. has a problem, it's that we don't spend wisely, not that we don't export enough.
    22 May 2012, 09:57 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2569) | Send Message
     
    Tack, I agree with most of this. And in fact you're echoing my own comment rather than disagreeing with it when you point out the significance of USD as the world's reserve currency. It's likely the USD won't be the world's reserve currency forever, but even so, there's every reason to think the USD will enjoy a continued special status and strength.

     

    As I see it, the argument for continued strength of the USD is the expectation of future potential. The U.S. is and continues to be an economic powerhouse and a source of global dynamism. It can afford to be a debtor nation and a net importer for as long as that is perceived to be the case. I prefer to use the word "perception" because in the end that's what motivates people to hoard USD. But it doesn't at all imply that i don't think the perception is well aligned with the reality.

     

    If you go back and read my post, i think you'll see that there's not that much difference between what I wrote and what you just wrote. As long as there's a market for USD, that market need not be a domestic one. The situation w/the Yen is different and that's what i was addressing. Where I disagree is that the *extent* of the U.S. trade deficit is irrelevant. It over-lubricated the global economy during the bubble and is now needed as a way to lubricate it again to facilitate a global recovery but its magnitude is worrisome and puts the U.S. at risk. We can't expect to grow the trade deficit indefinitely w/o repercussions. Fortunately, we do seem to be rectifying the trade deficit. Domestic energy production is increasing and businesses are choosing to repatriate production. I think it's already coming back into balance -- returning to a more modest and healthy level.
    22 May 2012, 10:16 AM Reply Like
  • Tack
    , contributor
    Comments (12739) | Send Message
     
    SDNS:

     

    Thanks for added commentary.

     

    I continue to think that a stronger dollar would be tonic to everybody, as we'd consume more, and the rest of the world would export more. The U.S. is awash in dollars sitting around stagnantly. we need them to get into circulation, preferably abroad where deflation reigns.
    22 May 2012, 10:42 AM Reply Like
  • SanDiegoNonSurfer
    , contributor
    Comments (2569) | Send Message
     
    Here's a table that shows US trade balance since 1960 (Col 2): http://1.usa.gov/KjJh3g You can see the big decrease in trade balance from around -100B pre-internet bubble to below -700B at the peak of the housing bubble. We're floating back up with balance around -500B but there's a question of whether that trend will continue. I like trade balance as an indicator of economic health. You can see the extent to which it would have shown the vulnerability of the housing bubble in 2006 as a false economy that was based on a runaway (and unsustainable) trade imbalance.
    22 May 2012, 10:42 AM Reply Like
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