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Thursday, September 16, 2010

A provocative analysis of Japan's economic prospects

I highly recommend WHEN JAPAN COLLAPSES, released today over at The Burning Platform. While the tone of the piece is a bit hyperbolic, the author has gathered a solid set of data shown in chart form to back up his thesis. That is as follows:

"If the market demands an interest rate of anything more than 3.5% to buy their debt then Japan will not have the revenue to service its debt. As the interest rate approaches 3.5% Japan must use all its tax revenue to pay interest on its debt. It becomes readily apparent that Japan will eventually be forced to default on their debt. There are no good options left. A minor uptick in interest rates will sink the 3rd largest economy on the planet. The near failure of a 3rd world country (Greece) turned the world upside down. The failure of Japan would likely touch off a worldwide crash."

The key is that any significant shift away from the current global patterns of trade and investment flows will likely lead to major defaults, as governments and central banks have used their textbook policy options and the results have been maintenance of a delicate balance at best.