Japan’s Collapse Shows Why Canada’s Model is WINNING

Japan’s Collapse Shows Why Canada’s Model is WINNING

There is something strange about witnessing a disaster unfold in slow motion. It’s not like a car crash, God forbid. It’s more like standing on the shore watching a tsunami far out at the sea, the water slowly receding, the horizon twisting into an impossible shape. That’s what Japan’s death story has become. An uncanny quiet before the storm. Now, I will admit the numbers themselves are almost numbing. But when I saw the bond market’s reaction this week, I felt a kind of dread laced with awe at just how long a system can defy gravity before gravity decides that, hey, it’s time to collect. This is not just about Japan’s 12 trillion bond market, or another economic scare story. I’m not going to do any of that. It’s about the moment when the world’s most stable outlier suddenly becomes the epicenter of global risk. Perhaps I feel like it’s warranted here in this video that I give a general disclaimer that I am not giving anyone any sort of financial advice ever. Instead, what I want to explore is what happens when a country built on denial meets consequences that it has spent a generation outrunning and why this moment should worry every major economy, not just Tokyo. We’ll dig into how Japan’s era of financial exception is now ending. how this is actually sending shock waves to the global markets and maybe most uncomfortably what it reveals about the global debt system itself. Along the way, I will reflect on the nature of the Nile itself. Quite existential of me, the cost of wishful thinking, and why sometimes the worst problems are the ones that we see coming but refuse to actually face. Let me ask you directly, especially those of you watching from Canada. If your government was forced to choose, higher taxes, deep spending cuts, or letting inflation silently erode your savings, which would you accept and why? Share your answers below. I’m always super interested in how actual people weigh these impossible choices. Because at the end of the day, somebody always pays for financial denial. Just a quick personal note, my new book, Awake, the practice of critical thinking in an age of self- lies, is finally out in the world now. It’s more than just a guide to thinking more clearly. It’s about finding calm and clarity in a world that keeps getting louder. If you’ve ever felt like I do, worn down by the noise and knee-jerk opinions and want practical ways to think things through, especially under pressure, I think you’ll find it valuable. Or if you know somebody who could use that kind of support right now, it might actually make a thoughtful Christmas gift. There’s also a 24-minute companion podcast that walks through the key ideas, plus a launch video and a special discount for subscribers, all linked down below. And one more thing, maybe you didn’t know, but I’m a computer scientist and I have a PhD in the field. I’m working on a new course all about AI fluency, essentially making sense of the technology that’s shaping the next decade. If you’re interested in this space and want to help guide what I build, I’d love to have your input. There’s a quick eight question survey, just a couple of minutes to fill out, and your thoughts will directly influence the content that I build next. The links to everything are below. It would mean so much to hear from you. Thank you for listening. But now, let’s get back into it. Now, there’s a sort of dark magic in how Japan has avoided disaster for so long. Quite ingenious actually, right? For three decades, pundits and policy makers around the world have pointed at Japan’s soaring debt and calmly predicted doom. But each time the doom just failed to show up. Maybe it wasn’t going to show up ever. Bond yields barely flickered. The country just kept going. In a way, Japan became a mythological creature. Proof that maybe the laws of economics were less like laws and more like friendly suggestions. Right? But myths have a cost, my friends, and every myth eventually meets reality. That moment arrived in the former Prime Minister Takayichi new administration. Just 6 weeks in, she launched a stimulus package worth $135 billion, not targeted at deep reforms or long-term productivity, Ala Carney, but it’s short-term handouts, rice vouchers, cash payments, fossil fuel subsidies. Watching the roll out, I felt a sense of just a little bit of disbelief. It wasn’t just the size of it, but the intention behind it behind this fiscal policy. These were not policies designed for resilience, but for political survival. Painkillers, not necessarily cures. And global markets, usually slow to react to Japanese politics, snapped awake. Japanese government bond yields, long frozen near zero, shot towards 2% levels not seen in a quarter century. Even though 2% sounds like a small number, I get it. For almost any other country, that would not be catastrophic. But for Japan, where every budget is built in the assumption of ultra low rates, this is a crack in the dam. There’s a phrase used in financial circles, my friends, the widow makers trade, to describe the wager that Japan’s bond market would finally break. And for years, that trade destroyed anyone bold enough to bet against Japan’s debt. But now, for the first time in a generation, the widow maker is starting to look less like a myth and more like a warning. Inside Japan, the fear is palpable. Economists whisper about a less trust moment. Oh, how we know so much about that in the UK. The kind of sudden self-inflicted meltdown that can end a government overnight. Debt service costs were already rising sharply. But now with Takahuchi spending spree, warnings grow louder every single day that this is a fiscal reckoning and not a drill. And to think clearly here, we have to hold multiple conflicting ideas at once. On the one hand, Japan’s debt is enormous. On the other hand, what really matters is the fragile trust holding the system together. When that trust wobbles, it’s not just the numbers that break first. Is the story that unravels, the story of exception, of immunity, of safety. And for years, the yen was the global safe haven. Every time the world turned chaotic, money would rush into Japan, strengthening the currency, shielding it from harm. And in some ways, it was the ultimate paradox, right? a country with the world’s highest debt to GDP ratio treated as the ultimate vault in a storm. But something subtle has shifted here. The yen now hovers at its weakest level in 50 years, flirting with 155 yen to the dollar. It’s behaving less like a developed currency and more like something out of a crisis emerging market. Volatile, exposed, no longer insulated from global shocks. Part of this is policy. Yes, the new administration has essentially abandoned even the pretense of balancing the budget. Instead, they’ve rolled out a spending blitz blending industrial policy with political giveaways. Sure, there’s of course some very big bets on technology, AI, semiconductors, quantum computing, all wonderful bets in my opinion. But even optimistic analysts say most of that money is just noise. And more worryingly, inflation has returned to Japan for the first time in a generation. The era of free money, the era that let Tokyo borrow and spend with near impunity. Unfortunately, I think it might be over. Every maturing bomb must now be replaced at higher rates. The International Monetary Fund, the IMF, expects annual interest costs to double by 2030, quadruple by 2036. But that’s if the markets stay calm. And financial history suggests regime shifts rarely remain orderly. My friends, some analysts are already sketching out scenarios Japan hasn’t even seen since the dark days after the Second World War. Wealth taxes, capital controls, even the possibility, however remote, of freezing bank deposits. That’s crazy talk, right? Yet, what really gets to me is the sense of vertigo. For decades, Japan was a kind of shock absorber for the world economy. But now, as its buffers weaken, that shock will just have to go somewhere else. You know, it’s tempting to treat Japan’s story as unique, right? An anomaly born of unusual demographics and a compliant political culture. But the more I look, the more I see the outlines of a pattern. The age of debt is global now. The United States, the supposed engine of stability, carries federal debt equal to 125% of GDP. With interest payments rising faster than even the Pentagon’s budget, China’s miracle years have ended in a slow, grinding crisis of local government and real estate debt. Europe, long haunted by the ghost of its sovereign debt crisis, is still running a collective debt to GDP ratio of around 95% with only the European Central Bank’s intervention keeping the seams together. Here’s the unnerving part. Together, Japan, the US, China, and Europe now account for the vast majority of all sovereign debt in the world. The scale defies imagination anymore. I can’t even imagine a number like this. 337 trillion in total global debt. I mean, like, we’re just imagining numbers at this point. and a sovereign bond market growing more volatile and interconnected by the year. The problem isn’t just the size, is the changing nature of the risk as well. When interest rates were at a zero, governments could pile up debt without facing the immediate consequences. But now central banks have kept rates elevated to fight inflation, rightfully so. And the cost of denial is rising as well. And in developing countries, the pain is even sharper. The United Nations now reports that 3.3 billion people, that’s nearly half the planet, my friends, live in places where governments spend more on interest than on health and education. This is not just a financial problem. This is earth waving a red flag. It’s a moral problem. And as US debt costs surpass a trillion dollars per year, the same story is playing out at the heart of the system itself. There is no painless answer here. And yet, the more we avoid the reckoning, the higher the eventual costs will be. Japan’s crisis is a warning shot, but also a mirror to all of us. The world has entered an era where the margin for error is now evaporating. Every financial system is now more tightly coupled. Every shock, no matter where it begins, is transmitted instantly. Some optimists point out that Japan still has deep reserves, massive external assets, a central bank with the credibility and capacity to intervene at scale. That’s fantastic. But those buffers too have limits. Nothing is omnipotent here. And as the population shrinks, as the workforce ages in Japan, those limits just draw closer and closer. If Japan loses the confidence of global markets, the consequences won’t stop at its shores. Tokyo is the largest foreign buyer of US debt. My friends, if it steps back, Washington will find it harder and more expensive to borrow. Higher US yields will ricochet around the world, hitting everyone from British pensioners to emerging market borrowers, probably us as well. There’s a philosophical truth behind here that for years, Japan was the world’s financial shock absorber, quietly stabilizing markets and absorbing risk. But now, with its own crisis brewing, that role is ending. The shock has to go somewhere. And increasingly, it’s coming home to the core economies. And I find myself coming back to one question over and over again. Who benefits from our denial? The myth of endless stability let governments and investors push risk into the future somehow, always hoping that somebody else would bear the cost, the future us. But the bill is now coming due sooner than we expect, and nobody seems prepared to actually pay it. By the way, if you’re finding value in this, do consider subscribing. The House of L is a community of thoughtful, curious people, and you’re very welcome here. Albert Cami wrote, “To live is to be haunted by the sense of disaster.” Isn’t that right? Watching Japan now, I think I understand what he meant. This is not a sudden calamity, but a slow, quiet reckoning. The kind that comes from decades of putting off hard choices. So, let me return to that uncomfortable question from earlier. If forced to choose higher taxes, less public spending or the silent erosion of your savings through inflation, what would you actually accept? Most people understandably want none of the above. Me neither. They hope the system can muddle through somehow. But the lesson from Japan is clear, my friends. The time of muddling through is ending. Maybe not this year, maybe not in 5 years, but it is coming. The consequences are no longer a distant threat. They’re unfolding right now in real time. To think critically here is not just to see what is happening, but to also ask, who gains from our complacency? Who stands to lose when the music finally stops? The era of Japanese exceptionalism is over. And with it, one of the world’s last shock absorbers. Now the whole system is exposed, more fragile than it appears. If this kind of thinking resonates with you, if you want to understand how to navigate the noise, the hype, and the complexity of our current moment, I think you’d really enjoy my book. It’s called Awake, the practice of critical thinking in an age of self- lies. And it’s written for people who want to stay grounded, think clearly, and live in reality even when the world makes that feel impossible. I’ve also now included a 24-minute podcast episode where we unpack some of the ideas behind awake in a more relaxed, conversational way. Perfect if you prefer to listen while walking, driving, or just taking a break from screens. You find the link down below. I’d love to know what you think of all of it. As always, thank you for being here and for thinking through these questions with me. If you like the conversation, do consider subscribing for more. And don’t forget to check out these other videos that I’ve linked here as a natural next step for a deeper dive. Stay curious. Keep your arguments nuanced.

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There’s something eerie about watching a superpower slide toward crisis in slow motion. Japan was supposed to be different. But now, the world’s most “stable” debt story may be turning into its biggest risk.

🌊 Japan’s myth of financial gravity-defiance is breaking
🇯🇵 PM Takayichi’s massive stimulus may trigger a market rupture
📉 Yields on Japanese bonds spike to levels unseen in 25 years
💸 The yen is collapsing—no longer behaving like a safe haven
🌐 $337 trillion in global debt is now more fragile and interconnected
⚠️ The IMF warns Japan’s interest costs could quadruple within a decade
🇺🇸 A ripple effect: how Tokyo’s shift could destabilize US and global markets

For a generation, Japan was the world’s financial shock absorber—so stable, it seemed immune to reckoning. That illusion is now collapsing. What begins in Tokyo could soon ripple outward, confronting every major economy with the same question: who pays when the margin for error disappears?

📌 Chapters included:
00:00 Introduction
02:50 The End of Financial Gravity
05:26 When the Safe Haven Isn’t Safe
07:20 The Global Mirror—How the World Became Japan
09:15 The Margin for Error Is Gone
10:54 Some Reflections

#JapanDebtCrisis #GlobalMarkets #SovereignDebt #BondYields #CurrencyCollapse #HouseofEl #Geopolitics #CriticalThinking #FinancialSystem #AwakeBook #MarkCarney #InflationChoices #EconomicDenial #SafeHavenNoMore #USDebt #globalrisk