Japan Edges Closer to the Real Fiscal Cliff

We should all try to keep in mind that Japan was the first major economy to get on the Keynesian bubble and bust roller coaster.

What they are doing now may be our future.

They have dug themselves such a deep debt hole that all tax receipts combined just pay debt service plus social security. And that is with interest rates held down by the government to absurd levels. If interest rates rise at all, then total tax receipts won’t even cover debt service.

If this happens, and it could happen even without an increase in interest rates, what will the government do? Will it just print whatever yen it needs to pay its bills? Or will it default?

At least the Japanese government mostly owes Japanese, not foreigners.

Stay tuned.

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