2012-08-14dailyreckoning.com.au

Bonner on how Japan's "Housewife protesters" over new tax increase (reminiscent of similar protests in Argentina in 2001)

... is THE story of our time... a harbinger of the coming worldwide financial implosion.

...

In order to keep up with Japan's debt, Japan is taking money from citizens - via a sales tax. The tax is modest. It should be no big deal. But there is only a limited amount of real purchasing power in an economy.

And it is that purchasing power that must, ultimately, be the source of debt repayment. A sales tax merely transfers money from households to the government. Japan's households are already not big spenders. The additional tax will make them spend less, leading to further economic weakness... and possibly the need for more borrowing!

...

Japan's government collects 28% of GDP in taxes and borrows another 10%. And this is while it pays almost nothing on interest on its debt. Were interest rates to return to normal levels, Japan would have to cut half its spending in order to stabilise its debt.

...

More likely, Japan will print money to cover its debts. This will spook investors who will drop Japanese yen and Japanese bonds. Still a disaster, but of a different sort.

In short, Japan's debt is bad. It is just a matter of time until the world realises it. Maybe a year. Maybe five years. We will see.


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