Friday, March 18, 2011

About the Japan Crisis and What to do?

Firstly, i pray that the Japanese disaster will end immediately and that the nuclear situation be kept well under control and a heavy rain cloud will just suddenly appear over the reactors and pour out godzillion tons of water at the fuel rods. My heartfelt condolences!

There has been rife talk about the next time bomb which is the Japan Sovereign debt. Let's begin the bad news.Japan's public debt is reaching 225% of GDP. Japan needs to spend more to rebuilt which will result in even more debt. Japan's aging population will result in less tax revenues which will increase the debt. S&P has recently cut Japan's sovereign debt rating for the first time since 2002.Moody says it might follow suit. If these bad news is not enough to send a chill up your spine, why not some pictures to add to the gloom....
From the picture, it can be seen that government revenue is on a downtrend while government expenditure is on the uptrend, together with the rising trend of the government debt. Oh Gosh! Well if that is still not enough, why not throw in some videos featuring Chief Economists from Whos who in the banking world to rub salt in the wound. Here it is, you unbelieving soul!
Is that enough to create some sort of fear? Are you breaking out in cold sweat now? Have you pee-ed in you pants yet! Not me. Maybe cos im a spinelss creep, so definitely no chills up my spine yet.
BULL SHIT
And I Shall repeat Bull Shit.
but but but....who is going to buy JGB bonds anymore to lend to the japanese government if the japanese population gets too old and their savings are depleted when they are not able to earn. (Some background:Most of the government debt is financed by her own citizens.I think its 80%, not sure. The japanese government is basically selling more JGB bonds to finance the interest on the debt, So its a vicious cycle, where the government borrows more to pay off previous debt and the debt can only get larger at a faster rate.).

Honestly, this response makes sense if  we are talking about an individual person borrowing from cashlines,cashplus,citibank readicredit, HSBC personal loans to pay off existing loans which have high interest rates. The party will end soon eventually when all resources are depleted. A person cannot borrow forever.This also applies to companies.

However, the situation is different for a government. A government is able to borrow infinitely just by printing more cash. So what if the japanese citizens one day start to lend less to the Japanese government by buying less JGB bonds. SO WHAT! The government can simply order The Bank of Japan to buy the bonds up by printing money and that has been unravelling recently when the BOJ has been printing trillions of YEN. ( Similar to the US FED). This gloom doom crap about a Japan Sovereign debt is really hyped up in my opinion.Bring it on..make it 100000000000000000% of GDP instead of the 200% of GDP.Somemore zeros.....yeah, make it 100000000000000000000000000000000000000000000000% of GDP. It doesn't matter.

OK, having said the above. One consequence is this. Hyperinflation will result if governments just wantonly print money. SO for the individual investor, i feel the topmost concern now is to look for good investments that will beat the headline inflation. Therefore FIRE AWAY....BUY BUY BUY!Being fearful now because of the Japanese Sovereign Timebomb is plain stupid.It might be good for Japan too since it has been plagued by deflation for too long. Now what to buy....hmmmmm

*The above is my own opinions. I have been known to be wrong many times. But it has not been known if i have been correct more times or wrong more times......i wont tell.

4 comments:

  1. Haha.. I enjoyed this post. :)

    As to how much of Japanese government debt is held domestically, it is 95 to 97%. I don't have the latest exact figure especially after the Chinese government chose to buy JGBs instead of US Treasuries late last year.

    I wrote a piece on Japan's debt issue as well many moons ago:

    http://singaporeanstocksinvestor.blogspot.com/2010/02/japans-debt-issue-and-saizen-reit.html

    Have a good weekend. :)

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  2. Hi AK71,

    Nice of you to drop by :)

    Read your post on Japanese debt and the debt per capita thing is insightful.

    Been following your posts on Saizen Reit too...
    SPH is a good call :)

    SGDividends

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  3. At the beginning of the first episode of the first season Jillette pointed out that the series would contain more obscenity and profanity than one would expect in a series dealing with scientific and critical inquiry, but explained that this was a legal tactic because, "if one calls people liars and quacks one can be sued...but "assholes" is pretty safe. If we said it was all scams we could also be in trouble, but "bullshit," oddly, is safe. So forgive all the "bullshit language", but we're trying to talk about the truth without spending the rest of our lives in court."

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  4. Guess the video was nice but it was not their to view

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