Saturday, November 13, 2010

Japan will default in 2012

JJapan is in much worse shape than the US in terms of its national debt, but this is offset by the facts that most of its debts are internally held, they have huge reserves, and they are a net exporter country. Nonetheless, it is certain that they will default and this will happen before the US does.

According to Kyle Bass, (see also this) this will occur within 1-2 years, so I will call it 2012. Japan has already entered the Keynesian endpoint: their debt service costs exceed their income. They are already more than 1 quadrillion yen in debt and the revenue is only 40 trillion yen, with expenses at 97 trillion. Their national savings rate is now zero percent. Their system has been like a Ponzi scheme that works as long as there are new buyers. Well now there are no new buyers as their demographics have changed.

The only good news about this is that Japan has been relatively isolated from the rest of the world so the default won't cause a chain reaction. And maybe it will cause the US to wake up and realize how severe our problems are.

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