Japan Faces the Debt Bubble End Game

If one wants to look into America’s future, a good place to look is Japan.

Japan had its initial economic bubble in the 1980’s. Since then it has had one “lost decade” after another with hopes of economic recovery that are always disappointed. All this time, the Bank of Japan has printed more and more yen and the government has tried one “stimulus” program after another. The only result is that the government debt keeps rising relative to GDP until now it is the highest by far among developed nations. Fortunately for Japan, most of this debt is owed to Japanese rather than to foreigners, a major advantage relative to the position of the US. But by now, Japanese tax revenues barely cover the interest on debt plus social security, even with interest rates completely repressed by government. If interest rates rose, all current taxes might be needed for debt service alone.

Japan’s Keynesian politicians seem to have painted themselves into a corner. What to do now? What can be done now? In the article below, it is suggested that the central bank use its newly printed yen to buy assets. Buy stocks, buy factories, buy anything in one last effort to “stimulate” the economy. In all probability, this would only succeed in shredding the last bit of confidence in the today’s fantasy system. The only real solution for Japan is for the current regime to fall and for sound economic (non-Keynesian) principles to be re-established. Would this be painful? Of course. Any return to reality is painful.

As Japan goes, probably also goes Europe and the United States, with a lag. There are other ways the European or US debt bubble may go, but so far we are following in Japan’s footsteps.

Click here for the article.