Japan’s rescue attempt is already self-destructing their economy. The battle to raise inflation is killing what little appeal Japanese Government Bonds once had, while Japan’s dependency on debt means it has little choice but to pay the higher cost. Over 55% of the Japanese government’s expenditures goes to service debt or pay for social security. With a debt dependency ratio close to 50%, Japan essentially must borrow just to pay for these non-discretionary expenses. As rates rise and the population ages these non-discretionary expenses are expected to rise, thereby increasing the amount of debt required.
Accelerating inflation expectations, rising debt costs, growing social expenditures, declining investor appetite and high dependency on borrowed money could lead to a spiral in which Japanese bond yields rise very quickly, borrowing rises dramatically and the Yen falls precipitously. This situation would be financial Armageddon for Japan as it would no longer be able to pay for its basic obligations without fully monetizing its debt. The country would default on its debt and obligations to its citizens, either outright or by way of hyperinflation. The country’s economy would implode and massive financial institutions would likely collapse.
Tag Archives: Financial Crisis
Too big to fail. Interest rates. Borrowing. Fire-sales. The Flash Crash. Risky loan deals. Libor. Cyber attacks. Europe. Japan. China.
Cattle plague was not on the list.
On Thursday, the super council of bank regulators created after the financial crisis put out a list of their best guesses as to what could cause the next financial crisis. The most surprising thing about the list: It’s length.
That alone should be enough to rattle your faith in Dodd-Frank, the set of banking regulations that were passed in 2010. Nearly three years later, the number of things that could blow up the financial system still seems way too high.
Property in London is being snapped more quickly than at any time since October 2007, when the market hit its peak before the financial crisis, according to figures from real estate data firm Hometrack.
Homes in London were typically on the market for 4.6 weeks in April – nearly half the period of more than eight weeks seen at the end of 2008 at the height of the financial crisis. Sellers achieved more than 95 per cent of their asking price, also a level not seen since 2007.
Nowhere else in Europe are neo-Nazis and right-wing extremists profiting as greatly from the financial crisis as in Athens. As they terrorize the country with violence, the police stand back and prosecutors are powerless.
Right-wing thugs have been spreading fear and terror in Greece for months. The worse the financial crisis gets and the harsher the budget cuts imposed by European creditors are, the worse the terror gets on the streets. Foreigners have been attacked, homosexuals chased and leftists assaulted. Some were beaten to death. There are parts of Athens in which refugees and minorities no longer dare to go out alone at night, and streets that are echoingly empty. Foreign merchants have had to close their doors, while journalists and politicians who criticize these developments receive threats or beatings.
At a recent event at the Wine Country Conference, Jim Chanos of Kynikos Capital Management, one of the world’s foremost experts on China’s economy and one of the world’s most prominent short sellers, explained the financial crisis that China has already started, and the dominoes that look like they are ready to fall.
The pillars of Chanos’ thesis are the property bubble, corruption, rising costs and growing dissatisfaction among the nation’s workers. The Chinese property bubble is something we’ve looked at several times before, but the situation isn’t getting any better. Chanos lays out the massive structural issues in simple terms.
A shadow banking system, made up of Local Government Financing Vehicles, Trust Products, and Wealth Management Products, is driving an increasingly expensive and highly leveraged property bubble. These products, along with others, facilitate corruption by hiding money in property.
Brussels identifies 13 countries, including France, in need of urgent action, underlying growing scale of eurozone crisis
In a hard-hitting report on the countries facing macroeconomic imbalances, such as overvalued housing markets or hefty government debts, the European commission identified a total of 13 member states – including France, the Netherlands and Belgium – which it said should take urgent action to restore the health of their economies.
And the big banks and financial institutions are engaging in the same risky behavior which got us into the crisis in the first place. For example, they are:
- Taking insanely risky bets (see this, this and this) with the money that we deposit into our bank accounts. When some of their risky bets blow up, they will either look to the government – once again – for a bailout, or to our bank deposits
- Getting back into “synthetic” financial instruments – and here – which are even more disconnected from real assets than regular derivatives
- Once again doing no-document mortgage loans
- Engaging in an ever-larger crime spree
What could possibly go wrong?
A leading Asian investment bank has warned that a new financial crisis is emerging in China, as debt levels rise to unsustainable levels.
Debt in China is believed to be between 150 and 200 per cent of GDP, pushed up by easy monetary policy the government has used to foster economic growth.
Nomura’s chief economist Rob Subburaman says there is a real danger of China being engulfed in a financial crisis similar to what has happened in the United States and Europe.
“If it’s not dealt with this year and policies remain easy, I think it’s a significant risk,” he said.