Japan debt crisis explained
You won’t hear about it in the mainstream media, but Japan is in deep trouble.
The story begins in the late 1980s, when the Japanese real estate bubble popped and its economy went into a deep recession. Instead of letting the failing businesses go bankrupt, the central bank slashed its interest rate dramatically, allowing all the zombie corporations to linger on. After a decade of stagnation they launched a quantitative easing program, in order to suppress long term rates as well. Does any of this sound familiar? This is exactly what the Federal Reserve has done after the 2008 financial crisis. Japan went down this road 7 years prior to the rest of the world. This is why the situation there is far worse.
The ultra-low interest rate allowed the Japanese government to borrow very cheaply, and use this money to try and stimulate the economy. It didn’t produce much growth, but it did get the government deep into debt. Japan’s debt to GDP ratio now stands at about 250%, roughly twice that of any Western nation. As long as the rate of interest was very low, the cost of servicing this debt was tolerable. But after the COVID pandemic inflation erupted, and the central bank had no choice but to allow rates to rise. As a result, interest payments on the national debt are skyrocketing, threatening to bankrupt the nation. There is very little public interest in holding Japanese bonds, and the value of the Yen is dropping.
Right now, the central bank is selling some of its dollar reserves in a desperate attempt to stop the hemorrhage and stabilize the Yen. But at some point it will run out of reserves, and will be left with only two options – either let the government default on its debt, which will lead to a huge deflationary crisis, or bail it out, which will lead to the collapse of the Yen and to a hyperinflation. Both choices are horrible, and will probably lead to a global financial crisis. This is not financial advice. This is just my personal opinion. But if I were living in Japan, I would be buying some gold and silver right now.
#japan #crisis #japaneseyen