Tuesday, May 19, 2009
Japan will be the first country to try and hyperinflate
Market Oracle: The Country Most Likely Heading for Hyperinflation
Not only has the Japanese government built the world's largest and growing debt, but its ability to collect tax income is about to take a big hit. Japan is in a deep recession, and its businesses aren't able to sell goods abroad right now. The Japanese government is in a hopeless situation. Because the Japanese government is broke, I think Japan is the world's most likely candidate for hyperinflation. When Mrs. Watanabe realizes her government's credit is irreparably damaged, she'll dump her government bond and currency holdings and seek tangible assets. Also, don't expect inflation in America until you see it in Japan first.
Posted by sold 2 rent 1 @ 10:21 AM (938 views) Add Comment
16 Comments
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1. sold 2 rent 1 said...
So Japan to hyperinflate first, then closely followed by the UK and US .... but from yesterday's postings...
"The eurozone governments are no longer risk-free “sovereign credits”, like the governments of the US or Britain, or smaller countries, such as Switzerland, Australia or New Zealand. A government that borrows in its own currency will never default because, in extremis, it can always instruct its central bank to print money to pay its debts. But governments in the eurozone cannot do this. They are in the same position as US state governments or as Argentina, Indonesia and Russia when they borrowed in dollars. "
So the Euro-zone led by Germany's fear of repeating the 1923 hyperinflation is likely to fall apart with a deflationary crash and break-up
2. uncle tom said...
One should not forget that Japan has nearly a trillion dollars of foreign exchange and gold - they created debt to buy foreign exchange in their war against deflation, so their net debt figure is far less oppressive.
I don't see any reason why Japan should lead the world into hyper-inflation, nor do I see any pressing reason why there should be a domino effect in that regard.
I think the UK has a much greater risk of seeing runaway inflation than any of the other major economies.
3. sold 2 rent 1 said...
Off topic, but it looks like cold fusion is back
http://www.marketoracle.co.uk/Article10736.html
http://www.eetimes.com/news/semi/showArticle.jhtml?articleID=216200272
"Now, the Naval researchers claim that the problem was instrumentation, which was not up to the task of detecting such small numbers of neutrons. To sense such small quantities, Mosier-Boss used a special plastic detector called CR-39. Using co-deposition with nickel and gold wire electrodes, which were inserted into a mixture of palladium chloride and deutrium, the detector was able to capture and track the high-energy neutrons. "
Are we moving closer to a world of free energy?
BTW, the news here was released on 22 March 2009 - a resonance with July 1959 when Noyce files a detailed patent for the Silicon Chip (internet revolution)
.
IMHO this is more evidence we are on the verge of a free energy revolution in 2011.
4. sold 2 rent 1 said...
UT,
Like China, the foreign reserves can never be spent domestically because their currency would rise too fast and crash exports further.
Plus they can't sell their US bonds because the US bond market would collapse too.
The Japanese government will never pay back the $7 trillion it owes. Already western governments like UK and US are printing money to support their own bond markets. When traditional bond buyers dry up completely the printing presses will go into overdrive to fill the gap.
There is only one way out of this mess. Print Money.
5. stillthinking said...
Apparently the foreign reserves are only a fraction of their liabilites, although very large.
http://zerohedge.blogspot.com/2009/05/moodys-lowers-japan-aaa-foreign.html
But isn't the point about Japan that they will have inflationary problems in the end, after their reflationary attempts, but when? If the BoJ already tried printing money while the world sucked out exports with a debt boom, and nothing happened, then why now/imminently? The Japanese are hard core savers, maybe the carry trade will kick off, but the only route to inflation would be for belief in the currency to be severely shaken. No government is going to induce a collapse in confidence deliberately.
6. sold 2 rent 1 said...
Don't be surprised if the M3 growth rate continues to fall into September to near zero precent like in 1970 and then explode to 20pc or more like it did in 1970-1971. (This is Calleman's resonance) October and November should see printing presses at warp speed.
7. japanese uncle said...
IMHO tons of printed money will be destined and intended to be sucked up into the coffer of banks whose bad debt is increasing by the second, never to recirculated to the purse of workers. Again as in the UK there will be no cost-wage spiral in Japan, hence no hyperinflation.
8. Mark Wadsworth said...
@ stillthinking, before we debate whether there'll be hyperinflation or not, let's remind ourselves that total borrowing by all governments = assets held by somebody else, as all things with money, it all nets off to nil.
Of US government debt, they owe 10% to China and 10% to Japan (or whatever the figures are). Of Japan's government debt, I suspect that most is held by Japanese domestic investors, so Japan owes that money to itself.
So if every country (governments, banks and citizens alike) put all its assets and liabilities on the table and netted them off, the whole picture would seem far less dramatic. Further, China and Japan have been well and truly conned - they hold all these US government bonds but cannot, in practice, cash them in.
9. sold 2 rent 1 said...
JU,
"there will be no cost-wage spiral in Japan, hence no hyperinflation"
Agreed. Massive currency devaluation is a better term than hyperinflation.
Hyperinflation implies Zimbabwe-style to destruction, but the West will eventaully have deflation after a huge inflationary spike from money printing.
There is a reason why the inflation-deflation debate goes on. Both sides will be claiming victory every few months as the economy spirals out of control.
10. paul said...
With all respect to Market Oracle, this article has the wrong end of the stick.
"Mrs. Watanabe" has most of her money "invested" in the Japan Post Office Savings system. The Japanese Post Office is the largest financial institution in the world by assets. There is no question of "paying the money back" as the article implies. Interest rates are rock bottom in Japan and have been for many, many years. If inflation rose, they would be able to raise interest rates and the yield on domestic deposits would rise, curbing the "yield hunting" that goes on.
Personally, I have GBP held in a Japanese account because the yield is so high.
11. uncle tom said...
There are roughly three times as many people living in countries that are developing rapidly as there are in nations that are already developed.
As the developed nations steadily devalue their currencies, and developing nations consume increasing quantities of commodities, so those commodities will increase in cost, along with manufactured imports bought by the developed nations.
The nett result will be steady and on-going inflationary pressures on the economies of the developed nations, which in turn will provoke the cost-wage spiral of inflation.
As the Yen falls, Japan's industry will prosper, and their ability to export will enable them to mitigate some of the adverse consequences.
However, the UK has all but destroyed its manufacturing base, and has failed to teach the skills necessary to rebuild it. We have not yet the political will to effectively reign in the public sector or seriously aspire to a balanced budget.
We are therefore likely to print our way into oblivion, before the nettle is grasped..
12. debtfree said...
I thought Hyperinflation was a currency event that happened in a deflationary environment.
It's a vote of no confidence in the currency which accelerates the printing press. Not the other way round.
13. sold 2 rent 1 said...
We could talk all day about the many dozens of factors on the edge of the inflation-deflation debate.
The absolute bottom line here, the card that trumps all other cards is when a heavily indebted government finds it has no more buyers for its sovereign debt.
This event has to happen at some point because governments cannot continue to increase their debt into infinity.
The only question is when will this happen?
IMHO it is looking increasingly likely that when the western government’s sovereign debt selling is halted, many governments will hit the big red print button at the same time.
This will give the whole world a massive inflationary shock that will send gold into orbit.
14. uncle tom said...
S2R1
Look at the BOE's QE program, and then compare it with the DMO's issuance of Gilts - it looks like QE is already outstripping the nett issuance of Gilts..
..so to your question "when will this happen", the answer is: "it already has"
15. sold 2 rent 1 said...
UT,
"Look at the BOE's QE program, and then compare it with the DMO's issuance of Gilts - it looks like QE is already outstripping the nett issuance of Gilts.."
The next question is when will they stop printing money, that is presuming that they are not going to print into infinity.
The answer is when we have a revolution. We have to take back control from our corrupt governments. There is no other way.
16. growler said...
S2R1: The QE means that BofE has assets on its books. These will also need to be sold at some point in time.
I cannot see any Government driving an out of control inflationary spiral. Investors will have striked well before then. If inflation is too high, there will be no appetite for paper assets. Bricks and mortar - or gold as you say - will become a safer bet.