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Japan Is Now Another Spinning Plate in the Global Economy Circus

Monday, March 5, 2012, 12:00 PM

At the circus, you are sometimes treated to the spinning plate act where a performer tries to keep an improbable number of plates spinning at once, racing from one plate to the next as their wobbles indicate the need for another dose of momentum. Considering the number of spinning and wobbling plates that our central planners are managing, it's easy to be both amazed and anxious at the same time.

The difference between the spinning plate analogy and real-world economic and financial systems is that if a failure occurs out in the real world, it has a very high chance of spreading across and through the other elements of the system. Contagion is the fear, as if in finally toppling, one plate will crash into its neighbor and set off a chain reaction of falling plates.

To carry this metaphor, Japan is a wobbly plate.

For those who are in a hurry today, the bottom line is that Japan is in serious trouble right now and is a top candidate to be the next black swan. Here are the elements of difficulty that concern me the most, each one serving to reduce Japan's economic and financial stability:

  • The total shutdown of all 54 nuclear plants, leading to an energy insufficiency
  • Japan's trade balance is in negative territory for the first time in decades, driven largely by energy imports
  • A budget deficit that is now 56% larger than revenues (!!)
  • Total debt standing at a whopping 235% of GDP
  • A recession shrinking Japan's economy at an annual rate of 2.3%
  • Renewed efforts underway to debase the yen

As I wrote a shortly after the earthquake in March 2011, Japan is facing an economic meltdown. If it is not careful, it may well face a currency meltdown, too. These things take time to play out, but now almost exactly a year after the devastating earthquake of 2011, the difficulties for Japan are mounting -- as expected.

Exacerbated by the earthquake and tsunami, Japan’s current predicament has been developing over many years and represents the aftermath of a burst financial bubble (involving stocks and real estate), an inability to let failed institutions actually fail, and repeated and stubborn attempts to preserve what ultimately could not be sustained.

Where many analysts predicted that the tsunami would be GDP positive because of the re-building that would follow, I predicted economic difficulties would be the main result due to broken supply chains, reduced factory output, and increased drag due to rising energy imports.

The Big Story – Energy

Japan is like the world’s largest petri dish, and the experiment at hand is about what happens to an advanced, industrialized economy when its electricity production is cut. As always, our view is that energy is the master resource. Our observation is that complex systems behave in unpredictable ways when starved for energy, but directionally, they tend to shrink and ‘simplify.’

Electricity is a critical form of energy, and thus the amount of electricity produced and a country’s GDP are very highly correlated. Sure, there is always some easy conservation that can be done that would allow an electricity shortfall to be met without any serious economic impacts. Street lights can be turned off, air conditioning and heating can be moderated, and other low-impact conservation efforts can reduce electricity consumption without doing much more than lowering utility revenues.

However, there is a certain point beyond which conservation can do no more and electricity restrictions begin to bite into economic activity. Plants end up running slower or even shutting down, productivity declines, and work can stagnate.

Before the Fukushima disaster, Japan relied on nuclear power for 30% of its total electricity production. As of March 26, 2012, that number is going to be 0%.

Japan's trade deficit balloons to record high as nuclear crisis pushes up fuel imports

As public worries grew, nearly all the 54 nuclear reactors in Japan were stopped for inspections. The government wants to restart at least some of the reactors, after checking for better tsunami and quake protection.

Resource-poor Japan imports almost all its oil. Until the Fukushima disaster, the country had trumpeted nuclear technology as a safe and cheap answer to its energy needs.

Now, Japan is importing more natural gas and oil as utilities boost non-nuclear power generation. Imports of natural gas in January vaulted 74 percent from a year earlier and imports of petroleum jumped nearly 13 percent.

(Source

Japan's KEPCO to shutdown its last nuclear reactor

TOKYO, Feb. 20 (Xinhua) -- Japan's Kansai Electric Power Company (KEPCO) is going to shutdown its last nuclear reactor for a regular check, the No. 3 reactor at Takahama nuclear plant in Fukui, central Japan, late on Monday afternoon.

KEPCO said that the shutdown operation would be completed by Tuesday morning. With this shutdown, there are only 2 operating commercial reactors remained out of 54 all over Japan.

According to the local media, the remaining two reactors, the No. 6 reactor at Tokyo Electric Power Co.'s Kashiwazaki-Kariwa plant in Niigata Prefecture will be offline on March 26. 

(Source)

If you are thinking that shutting down some 30% of a nation’s electricity production capacity is an extreme move, you are right. 

A Breach of Trust

There’s very good reason to suspect that the Japanese nuclear plants may not be re-opened anytime soon, as there is now enormous distrust of government authorities, especially after the release of a report last week charging that the government had secretly considered evacuating Tokyo even as it was downplaying both the severity of the Fukushima accident and the risks:

Nuclear Crisis Set Off Fears Over Tokyo

Feb 27, 2012

TOKYO — In the darkest moments of last year’s nuclear accident, Japanese leaders did not know the actual extent of damage at the plant and secretly considered the possibility of evacuating Tokyo, even as they tried to play down the risks in public, an independent investigation into the accident disclosed on Monday.

The 400-page report, due to be released later this week, also described a darkening mood at the prime minister’s residence as a series of hydrogen explosions rocked the plant on March 14 and 15. It said Mr. Kan and other officials began discussing a worst-case outcome of an evacuation of workers at the Fukushima Daiichi plant. This would allow the plant to spiral out of control, releasing even larger amounts of radioactive material into the atmosphere that would in turn force the evacuation of other nearby nuclear plants, causing further meltdowns.

The report quoted the chief cabinet secretary at the time, Yukio Edano, as having warned that this “demonic chain reaction” of plant meltdowns could have resulted in the evacuation of Tokyo, 150 miles to the south.

“We would lose Fukushima Daini, then we would lose Tokai,” Mr. Edano was quoted as saying, naming two other nuclear plants. “If that happened, it was only logical to conclude that we would also lose Tokyo itself.”

The report also described the panic within the Kan administration at the prospect of large radiation releases from the more than 10,000 spent fuel rods that were stored in relatively unprotected pools near the damaged reactors. The report said it was not until five days after the earthquake that a Japanese military helicopter was finally able to confirm that the pool deemed at highest risk, near the No. 4 reactor, was still safely filled with water.

“We barely avoided the worst case scenario, though the public didn’t know it at the time,” Mr. Funabashi, the foundation founder, said.

(Source)

After this damaging assessment, the people of Japan have every right and reason to be suspicious of official pronouncements about the safety of the remaining nuclear power plants. The Fukushima disaster is horrible and still unfolding, despite its near disappearance from the news.

We did an incredible job of covering that disaster, drawing upon experts, parsing the data, buying satellite images, and coming to our own conclusions. Very early in the situation, we advised people in Tokyo to get out, even as the Japanese government harbored those same ideas but spun a different tale. Our assessment of the disaster, especially after the entirely-too-energetic explosion of Reactor #3, was far more serious than the official story and did not jibe with what most people were being fed by official sources and the mainstream media.

At any rate, Japan has now shut down nearly all of its reactors for maintenance and safety reviews, and it is our assessment that re-starting them will take longer than currently planned due to public opposition and distrust of Japanese officials. Such are the wages of violating the public trust.

The Economic Impact of Shutting Down the Plants

Japan is facing a summer of extreme electricity shortages, and this will impact the economy quite significantly. With shortages of as much as 25% of peak load, imports of oil and gas running into the trillions of yen, and consumers facing as much as a 20% hike in their electricity bills if the import costs are entirely passed along, it is clear that a serious challenge looms for Japan, especially this summer.

Nuclear-Free Summer Looms Over Japan’s West in Risk to Recovery From Quake

Feb 28, 2012

Japan’s economic rebound from the deepest contraction among advanced nations after Greece and Portugal may be stunted this year as power shortages threaten its western region.

The Kansai area, which accounts for about a fifth of Japan’s economy and escaped the worst of electricity cutbacks after the March 11 earthquake and tsunami, last week lost its final operating nuclear plant. Power supply may be up to 25 percent less than peak summer demand if plants are not restarted, according to Kansai Electric Power Co.

Shortages drive up costs and force manufacturers to shift work schedules to lower-use periods, disrupting supply chains and adding to reasons to go abroad. 

(Source)

One other factor to consider here is that the fossil fuel plants -- natural gas (NG) and coal -- are currently running flat out to make up the shortfall. Many of these plants, especially the NG plants, were not designed for sustained max-load power generation. Their design parameters were for them to be peak load plants, operating flat out for brief bursts, not sustained periods. It remains to be seen if these plants can cover operate at capacity for very long.

In 2011, these assessments of the impact of shutting down Japan’s nuclear power were made:

The following are some estimates of an economic impact if all of Japan's reactors went offline.

THE MINISTRY OF ECONOMY, TRADE AND INDUSTRY

Power generation costs would rise by over 3 trillion yen ($38 billion) per year if Japan replaced nuclear energy with thermal power generation.  Higher electricity costs would lift production costs by 7.6 trillion yen per year. The ministry did not provide estimates of how such an increase in costs would affect economic output.

DAIWA INSTITUTE OF RESEARCH

Shutting down nuclear power permanently would reduce economic output by 2.5 percent per year -- equivalent of over 14 trillion yen -- over the next decade.

"Higher electricity costs would increase costs for corporations and individuals and weigh on both capital spending and consumption," said Daiwa's Mikio Mizobata, senior researcher.

NOMURA SECURITIES

- Fossil fuel imports would increase by about 3.3 trillion yen in the first year after all the nuclear power reactors are shut down, which would shave 0.4-0.5 percent of Japan's gross domestic product.

(Source

Because imports subtract from GDP (while exports add), any additional spending on fossil fuels to replace the shut-in nuclear power will subtract from Japan’s GDP. Remember, Japan has virtually no domestic fossil fuel production, so they have to import 100%.

And Import They Have…

Japan’s trade deficit

Trade Deficit in Japan Hits Record

Feb 19, 2012

Japan posted a record trade deficit in January as the yen’s strength and weaker global demand eroded profits at manufacturers and slowed the nation’s recovery from the earthquake and tsunami last year.

The trade gap widened to 1.48 trillion yen ($19 billion) and shipments dropped 9.3 percent compared with a year earlier, as energy imports surged, the Ministry of Finance reported on Monday in Tokyo.

Shipments to China, Japan’s largest market, fell 20 percent from a year earlier, the biggest decline since August 2009. Exports to Europe slid 7.7 percent and shipments to the United States advanced 0.6 percent.

The earthquake and tsunami led to the idling of nuclear plants and a surge in energy imports. Japan’s liquefied natural gas imports rose 12.2 percent to a record in 2011 as power utilities increased thermal power generation.

Energy needs accounted for most of the gain in imports in January.

(Source)

Conclusion

It is a very big deal that Japan is slipping into negative trade territory for the first time in three decades. Last spring I was writing about how the global flow of funds -- the massive tide of liquidity sloshing back and forth -- involved Japan to a large degree. Japan was the hub of a massive carry trade, was buying huge amounts of US Treasurys and, in general, was a vast emitter of liquidity flows to the world.

With its reconstruction costs and now with its trade deficit, Japan becomes a net consumer of funds. In other words, the flow of funds reverses. This represents, at the very least, a change to the global liquidity tide charts.

In Part II: Implications of a Collapsing Japan, we lay out the case for how close to the brink of economic crisis Japan truly is, and why the country is likely to stumble faster and further in 2012 than the shaky situation in Europe that is currently grabbing the world's attention.

Make no mistake. A material retrenchment of the Japanese economy will have profound impact across the globe. One notable example: If Japan has to stop buying US Treasuries to direct capital to its domestic needs or -- even worse -- begins selling Treasuries for the same reason, the Federal Reserve will have to put its printing presses into overdrive to make up the gap. 

Got gold?

Click here to access Part II of this report (free executive summary; enrollment required for full access).

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22 Comments

tomadkins's picture
tomadkins
Status: Bronze Member (Offline)
Joined: Sep 9 2009
Posts: 31
Got Gold

Hi, CM and Community,

Thanks, as always, for another insightful analysis.

Question:  Got Gold?

If all of us know that the Central Bank answer is "Control P", just how long until the rest of the world recognizes this in earnest?  That is the $64K question. 

I hold Federal Reserve Notes in my hand...they are paper with ink on it.  Sure, they have a (decreasing) market value i.e. exchange value.  But they are...paper.

Maybe I've been reading this stuff too long.  'Cause I'm thinking:  there has got to be a saturation point wherein there is just too much push back by the masses and the paper system / currency is abandoned.  Big time.

Reminds me of titration in chemistry class.  Just one more drop of the solution and the entire jar turns color...SATURATION.

I know we cant' turn the block back (i.e. Rosebud), but this total connectedness world-wide can be frightening.

All the best,

TomA

ariantes22's picture
ariantes22
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Posts: 4
Great article Chris, one

Great article Chris, one thing tho:

Quote:

Japan's trade deficit in negative territory for the first time in decades, driven largely by energy imports

a negative trade deficit is actually a trade surplus, I think you mean something different here.

Poet's picture
Poet
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Posts: 1840
Holding The Inevitable At Bay

I was looking for figures on Japan's budget for Fiscal Year 2012/2013, which starts April 1.

I found the following:

HIGHLIGHTS: Japan's 2012/13 Budget Meets Targets With Sleight Of Hand (December 23, 2011)
"
The primary budget deficit, which excludes debt servicing, is 22.3 trillion yen... Tax revenues are seen rising to 42.3 trillion yen."
http://www.reuters.com/article/2011/12/24/japan-economy-budget-idUSL3E7NL37B20111224

But we know the real budget deficit would include debt servicing. How much is that?

Insight: Japan Slowly Wakes Up To Doomsday Debt Risk (February 17, 2012)
"It costs Japan half of the country's tax income just to service its debt."
http://www.reuters.com/article/2012/02/17/us-japan-debt-idUSTRE81G0IZ20120217

OMG! Half of income just to service debt!

But then here's another quote from the article linked to just above:

"But to some economists who have followed Japan for years, the frustration is that the country has yet to solve its underlying problems of slow economic growth and stubborn deflation. As long as those conditions persist, it will be difficult to crawl out from under the debt burden."

Wait... If the Bank of Japan keeps printing to keep interest rates low, how come they keep having slow economic growth and stubborn deflation? Hmm...

Poet

fiatagogo's picture
fiatagogo
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Sinking Ship

Thanks for putting this in the spotlight.

It made me wonder about my mom's Japanese friends who have reiniated contact with us after a few years with none.  Maybe they are looking for a place to land should they jump ship?

SagerXX's picture
SagerXX
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Joined: Feb 11 2009
Posts: 2115
If I was a narcissist...

...and engaged in magical thinking, I'd notice that it seems like the closer I get to ticking off (at least the first round of) all the boxes in the Resilience Checklist (last biggie:  sustainable home-stead, which is percolating quickly along now, although with at least 6 months of hard work to go yet), the faster the world heads towards The Fan.  

After reading this piece, I daresay I won't need ongoing encouragement to keep my efforts churning along at Ludicrous Speed.

Thanks Dr. Chris, as always, for keeping that bonfire under my heinie well-stoked...

Viva -- Sager

SagerXX's picture
SagerXX
Status: Diamond Member (Offline)
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And congrats!...

...on becoming one of the few people that Zero Hedge honors by putting your name in the title of the post!  You're up there with Schiff, Art Cashin, Rosenberg and other Big Names.  'Bout time!

http://www.zerohedge.com/news/chris-martenson-japan-now-another-spinning...

SteveW's picture
SteveW
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Posts: 490
Meltdowns

"It said Mr. Kan and other officials began discussing a worst-case outcome of an evacuation of workers at the Fukushima Daiichi plant. This would allow the plant to spiral out of control, releasing even larger amounts of radioactive material into the atmosphere that would in turn force the evacuation of other nearby nuclear plants, causing further meltdowns."

Not central to your piece but I don't understand this quote, unless there's a translation issue. If the Fukushima Daiichi situation forced the evacuation of nearby nuclear plants why would the evacuating workers not complete the emergency total shutdown before leaving? Does nearby mean the other reactors at Daiichi and not other plants, hence a translation error?

Mirv's picture
Mirv
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Lessons from Japan

It seems that a few commentators think that the worldwide crash and subsequent Reset might start in Japan as the national finances of Japan are worst, the ability of citizens to fund their national debt terminates this year,  and also Japan already has led the world in a 20 year stagnation event. Yet,  I am preparing for the Reset by building  a refuge in Japan (I spend much  time there) and am very hopeful.  Surprising to me, the people in the countryside seem to be more aware of the upcoming reset and their role (local community development) in the post collapse world.  The last accountant I recently and randomly met there said he is vigorously stacking gold to get ready for the incipient crash.  A business man I recently met in Kyoto has developed small scale high efficiency (new nanoparticle based) biodiesel synthesis tools for local community production of diesel and plans to address the coming crash that way.  Both young and old  are moving or thinking about going back to the land, much more than the young people that  I talk to here in Virginia.  There is a ferment, probably due to the confrontation of young with the reality of a shrinking population and an increased (unfair) tax  burden for bloated social welfare.   Even the national govt. televises debates on national TV about the problems of energy, fuel imports and economics.   I am particularly optimistic that the new paradigm  of local  community development, while it should be painful, will proceed successfully (and earlier?)  there and might provide lessons   for several reasons.  For one the long term history going back to the Samurai period  has engrained an extreme distrust of and avoidance of the national government.   World war two certainly enhanced that distrust in the extreme.  In fact, when the national government TRIED to start a social security numbering system a few  years back, the entire country rebelled, starting with local politicians, who completely refused to cooperate with the evil national govt (an example of how power will distribute when SHTF).   And, the shut down of tthe entire nuclear energy industry in response to Fukushima is based on local decisions/control and local initiative - rejection of national government control.  It will be very interesting to see what happens when the finances of that national government implode.  I truly think  that local rural Japanese already have more  independence and freedom compared to the  US (in respecting (or not) national and regional laws) and that the elite have less influence on the overall national government.  Ttheir patent law system now (after ours recently has been trashed by our elite)  gives more rights to small inventors than the US does for example.  The Japanese legal trend in recent years has been to free the individual rather than enslave via elite control via federal law as in our  country (consider our bankruptcy law vs student loans, our military's legal ability to kidnap and torture US citizens in America etc) .  I expect to learn a lot from Japan.  Things look bad there and the people certainly are pessimistic, but that is because they are more aware of the problems.  I expect to see some very interesting developments regarding national vs local devolution of authority during the next few years...............

KugsCheese's picture
KugsCheese
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Mirv wrote: It seems that a

Mirv wrote:

It seems that a few commentators think that the worldwide crash and subsequent Reset might start in Japan as the national finances of Japan are worst, the ability of citizens to fund their national debt terminates this year,  and also Japan already has led the world in a 20 year stagnation event. Yet,  I am preparing for the Reset by building  a refuge in Japan (I spend much  time there) and am very hopeful.  Surprising to me, the people in the countryside seem to be more aware of the upcoming reset and their role (local community development) in the post collapse world.  The last accountant I recently and randomly met there said he is vigorously stacking gold to get ready for the incipient crash.  A business man I recently met in Kyoto has developed small scale high efficiency (new nanoparticle based) biodiesel synthesis tools for local community production of diesel and plans to address the coming crash that way.  Both young and old  are moving or thinking about going back to the land, much more than the young people that  I talk to here in Virginia.  There is a ferment, probably due to the confrontation of young with the reality of a shrinking population and an increased (unfair) tax  burden for bloated social welfare.   Even the national govt. televises debates on national TV about the problems of energy, fuel imports and economics.   I am particularly optimistic that the new paradigm  of local  community development, while it should be painful, will proceed successfully (and earlier?)  there and might provide lessons   for several reasons.  For one the long term history going back to the Samurai period  has engrained an extreme distrust of and avoidance of the national government.   World war two certainly enhanced that distrust in the extreme.  In fact, when the national government TRIED to start a social security numbering system a few  years back, the entire country rebelled, starting with local politicians, who completely refused to cooperate with the evil national govt (an example of how power will distribute when SHTF).   And, the shut down of tthe entire nuclear energy industry in response to Fukushima is based on local decisions/control and local initiative - rejection of national government control.  It will be very interesting to see what happens when the finances of that national government implode.  I truly think  that local rural Japanese already have more  independence and freedom compared to the  US (in respecting (or not) national and regional laws) and that the elite have less influence on the overall national government.  Ttheir patent law system now (after ours recently has been trashed by our elite)  gives more rights to small inventors than the US does for example.  The Japanese legal trend in recent years has been to free the individual rather than enslave via elite control via federal law as in our  country (consider our bankruptcy law vs student loans, our military's legal ability to kidnap and torture US citizens in America etc) .  I expect to learn a lot from Japan.  Things look bad there and the people certainly are pessimistic, but that is because they are more aware of the problems.  I expect to see some very interesting developments regarding national vs local devolution of authority during the next few years...............

Is the biodesiel proven in the quantities needed?   What will a Yen collapse mean to imported fossile fuel costs?  When the cities implode and some flee to countryside, what will that mean to support infrastructure?

KugsCheese's picture
KugsCheese
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fiatagogo wrote: Thanks for

fiatagogo wrote:

Thanks for putting this in the spotlight.

It made me wonder about my mom's Japanese friends who have reiniated contact with us after a few years with none.  Maybe they are looking for a place to land should they jump ship?

Most likely.   Tell them to bring their gold.  Got Gold?

Jim H's picture
Jim H
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Posts: 1480
Mirv

Having been to Japan myself and experienced train rides out of Tokyo where you seem not to leave what we would define as "City" for at least 45 minutes.... how do you expect the rural portions of Japan to handle the outflux from the cities once food scarcity sets in?  While I would expect Japan to be the last place to go "Mad Max"... I don't think that the rural areas would fare as well as you suggest... what might look quite utopian now, would look much different I think once the population of the cities starts to fan out.  Said another way, a quick data lookup suggests that Japan's ave. population density is 10x that of the US... 336/km2 vs 34/km2.  I don't want to rain on your parade... and I do think highly of the Japanese for their industriousness and their reverence for nature, but I question whether things will really be better in Japan.. I think we are better positioned in the US to reinvent a more agrarian, localized future, population density-wise, and with regard to US/internal resource availability (at least we have some oil/nat gas to keep farm equipment running).    

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TheSilverJournal.com
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Entire World in Debt Pain

Japan is in a bad spot, but so is every other major country. All fiat is set to collapse when the bond market implodes, which is why Greece will be saved. The malinvestments in debt must be kept hidden if the money printers would like to keep control of their printing press.

TheSilverJournal.com

Mirv's picture
Mirv
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Japan is the last place to go "Mad Max"

I was thinking the same and have discussed this with individual Japanese.  1. they emphasize that their small efficient farms already are providing much food to a shrinking population which is set to shrink dramatically and require less food. 2. the cities will not explode in gun fire and mayhem, so there is little incentive to leave for that reason.  3. even after the reset most people will still want to live in the cities, so I would expect the VALUE of farm work to increase and the output to increase, particularly if they can use electric to replace diesel for their small farms.  I chose an island that is not connected to the mainland but requires a ferry. Already ferry service is decreasing because of the price of diesel and the depopulation of the area is continuing.  While  paying much attention to events that lead up to the crash, I am more focused on what happens afterwards, and am planting fruit and nut trees, while building solar electric farm technology, electric boats and improved  solar controllers for off grid applications. I expect that in an oil restricted world, small farms in Japan will not be as disadvantaged compared to giant US farms.  If one can supply solar electric easily to each portion of a small Japanese farm/garden so machines can work but if the US farmer has no diesel, I think that Japanese agriculture could do better than US agriculture,  particularly if civil strife and theft becomes an additional problem. By the way, most Japanese who live in cities their whole lives feel very despondent and hopeless and would not agree with me at first, but they are not as  familiar with the rural locations and are not as trained as westerners in the dialectic to examine and evaluate unusual conditions for opportunities.  In a world of very expensive, limited oil Japan likely will confront the problem first.  Regarding infrastructure it is phenomenal, and already includes enough electric trains to mostly move everyone without any cars NOW. 

Nichigin's picture
Nichigin
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Comment from Japan
I live and work in Japan. I'm also married with four kids.
So I have reasons to be concerned.
But before I pack my bags and head for the hills where the sky is clear of
UAVs, I would like to make a comment.

Many commentators, economists, academics, and skeptics point out how huge the Japanese govt. debt is.
And it truly is impressive. This amount of debt will never be repaid.
That part I will not argue.
But while many people know about the existence of a colossal amount of debt, very few know why Japan ended up with so much debt.

Knowing why Japan piled up such a huge amount of debt is important because once you know the reason you may find out that Japan is not as wobbly as it appears.

You have to remember that Japan by far is the largest creditor nation in the world.
Japan still beats China in this respect if you don't limit the definition of  asset solely to the US treasury bond that is.
Now how can a govt. of the largest creditor nation in the world be in so much debt?
Why is the govt. bond of the world's largest creditor nation rated so poorly by the rating agencies?

If you have been to Japan, you will know that we lead an onerous existence pretty much like the rest of the people in the developped world more or less.
If so, on what did the govt. spent the money on to incurr the debt?

It all comes down to a special relationship Japan has with the United States ever since the end of the WWII: a reltationship that of a master and a servant. Now you know which one is the master.

After the war, to help Japan recover and prevent it from turning communist, the United States opened its market for Japanese goods and services under one condiotion. Add that condition was that Japan is free to make any amount
of money from the Americans but you have to leave the dollar behind in America.

This rule holds true even today.

In his article, Chiris concludes that "If Japan has to stop buying US Treasuries to direct capital to its domestic needs or -- even worse -- begins selling Treasuries for the same reason, the Federal Reserve will have to put its printing presses into overdrive to make up the gap."

Now the above sentence makes sense if you replace the word "Japan" with "China", because China can stop buying or begin selling treasuires. Japan does not have the same option China has. The choices Japan has are buy treasuries, buy more treasuries, and/or roll over. Selling US Treasuries are the biggest political taboo in Japan. Even in the aftermath of the biggest earthquake in recent memories last year, not a single politician brought up the subject of selling US Treasureis to finance the recovery efforts.

Selling treasuries is simply out of the question.
 
In short, most of the debt Japan incurred was actually spent by the Americans. Over the years, the Japnese made a tremendous amount of money in the United States but unfortunately they could never repatirate the profit for thier own use. So what did the Japanese do to make up for the profits that never came home? They created yen through debt,
mostly by financing public work projects. In other words, as amazing as the amount of the Japanese debt is,
it is backed indirectly by foreign assets.
 
This is reason why I believe Japan will teeter along without falling.
If you don't believe me, try deducting the amount of asset Japan owns from the amount of debt it has.
Even if the result is net negative, I am pretty certain that the size of the debt will be such that few will be interested in harping about.
 
If you want to learn more about Japan and its strange relationship with the US, please read works by Karel van Wolfren.
This Dutch man is to Japan what Alexis de Toquville is to America.
 
Lasltly my prediction for the black swan event is China. I think the FRB has been so conditioned by the
Japanese to think of the Asian investors as docile in nature. But China is different.
China can not only stop buying US Treasuries it can start selling US Treasuries for political reasons,
something Japan could never ever do.
 
So what would that political reasons be?
 
How about Iran?
Mirv's picture
Mirv
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Comment from Japan

Thank you for your thought provoking comments Nichigin.   What are UAVs?

I have two additional  comments:
1.  overall as a country Japan financially is the richest in the world.  If you consider total ownership (companies and especially by individuals), they own so much non-government debt as well it is amazing.   When I go to work in the morning in Virginia, I buy gas and coffee from a Japanese company  (7-11) and talk with a Japanese employee.  Many US companies are owned partly or outright by Japanese people and companies and the people have many assets  in other countries beyond US debt. I have seen objective compendiums of total financial wealth country by country wherein Japan is clearly at the top.

2. I always thought that most of that Japanese national  debt was incurred (wasted) on the amazing infrastructure of Japan.  While the US wasted trillions building ICBMs and polluting vast regions with (bomb making) nuclear waste (and military  spending overseas), the Japanese "wasted" their trillions building concrete river beds, concrete walls around every island, artificial concrete breakwaters and harbors literally everywhere, fortifications around all of their islands, high speed trains  everywhere, tunnels, bridges  that are hardly even used. Even semi-abandoned small islands often have solidly build (concrete and steel) bathrooms, ports, etc.  Throughout the 1970's Japan was number one concrete maker in the world for example, busy "wasting" national money/debt on the corrupt sweetheart government contractor dealings  to fortify the islands.  Such "waste" (high  seawalls built to satisfy the employment needs of a corrupt government/contractor relationships) now protects  the Japan  islands from global warming (oceans rising) and  other vissitudes of nature.  Contrast that extremely useful "waste" with the wasted military bombs and wars produced by the US.  The "wasted"  infrastructure for electric trains alone is basically finished and provides (mostly electric) public transportation for the vast majority  of needs of everyone.  The national debt did not  arise from taking money and spending on US treasuries  as much as  spending on the politically corrupt-sweetheart deals  with contractors to build "wasteful" seawalls,  "wasteful" tunnels and "wasteful" electric  trains.  After the crash, all this "wasteful" infrastructure, which incurred debt (I understand that the debt for the bullet trains was rolled over into other debt and not paid off) will be used for many years.  I wonder how much of the deficit spending really is spent on buying US treasuries vs spending on projects domestically. I  am not aware that the legislature is under tremendous  pressure to borrow  money from the people and used the borrowed money to buy US treasuries.  You mean the national budget (always  in the red) has a line item for buying US treasuries?  When the diet cant balance the budget, the national government still sends money to America?  I always thought that the constant surplus from exports led to profits in COMPANIES, which invested in America.

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Jim H
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Nichigan and Mirv..

Great inputs by both.. this is very insightful dialogue.  I appreciate the idea that behind the debt of Japan is much real wealth in the form of Real Estate, infrastructure, and money-making companies (many of which I deal with, both as Japanese-based, and Japan-parented US entities).  What is not clear to me is how much difference this makes in the outcome that Chris painted... because regardless of what backs it, the debt still exists, and must be serviced.  There is lots of public/national debt, and lots of private assets.. and no effective means that I can see by which the assets can be sold off to reduce the debt.

Too much debt has been socialized.  The death spiral is well underway, with an astounding 56% of the budget coming from borrowed money.  As with the US, the only possible means to stave off crisis would be to immediately cut MORE than 56% of the budget spending so that spending = tax revenue.  The reason I say > 56% is because, of course, by cutting so much out of transfer payments, the economy will shrink concomitantly, necessitating an even bigger cut in order to find a new point of balance.  I get the feeling that Japan's politics is no more functional than the US in terms of it's ability to deal with this reality - the need to live within their means.  

Again, Nichigan... help me understand why the indirect asset backing you speak of actually changes the functional reality of the situation?     

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I was stationed in Japan back in the early 70's

...and these outstanding threads have taken me back to days I truly enjoyed. I don't know why I loved my time in the military but I did. To add a very small piece to the discussions here, DEBT is DEBT in all language and cultulture. At 265% GDP with a ruined jewel of an electrical infrastructure it really doesn't matter what is left, does it? All nuclear power stations are shut in for the forseable future, and until such a time that the government sees the all clear sign these stations will remain shut in, unproductive, and a drain on the national treasure.. The nation is still in a state of morning, and until times become so dire do I see many of the plants started again. They will be started again are my thoughts. To my memories now, in Japan, and especially Okinawa, every square inch of dirt on ones property was a fruit and vegetable garden. Out back the Pacific Ocean. Just one beautiful place with world acclaimed reefs that to snorkel in was a visuals made for the GODS. Go Tigers

BOB

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Jim and Nichigan and MIrv

lol  I appreciate the criticism because I learn much and (obviously) dont have a particular insight as to which will blow first, the US, Europe, Japan or China.  Presently I favor China or Europe to lead the way to fiat meltdown because the national (but not local!) politicians in Japan are too chicken s--- to do anything without copying another country such as the US and the people there probably are fooled more easily about fiat melting  (hiding the new consumption tax (which will double!) by mandating that prices be listed with tax already included for example).  My point about infrastructure was that of all possible worlds, Japan has some advantages that are overlooked.  The future world is a resource restricted/limited world and Japan has been living in that world many years and is used to getting by with less resources.  If the future is small farms (not humongous mega fields requiring prodigious diesel and thousands of bused in migrants) that require more labor/unit area but have high output per unit area, I would not write off Japan, since it is already there (has done  that and is doing that- and it seems is already doing much more locavore than us).  Ditto with loss of gasoline and stranded citizens in isolated suburban dwellings without the ability to easily travel to work or travel to obtain food.  Perhaps the ideal is walking/bicycle with an electric mass transport system, similar to Japan's present condition.  Even Japan's systemically dsyfunctional national government leadership may be a blessing in disguise if the solution to the fiat meltdown is reorganization of life away from big government-organized crime control back into local regions and cities with local solutions.  In sum I dont disagree with anyone's comments but I think Japan will provide interesting and entertaining lessons because it has already addressed (in part by accident) many of our future problems. Anyway, I hope to revisit this topic in about 3 years with you.  lol      

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Can really nuclear meltdown cause other nuclear meltdowns

Leaving aside the financial aspect for a second and focusing on the energetic and scientific one. The articole at some points presents a scenario saying that

  The 400 -page report, due to be released later this week, also described a darkening mood at the prime minister’s residence as a series of hydrogen explosions rocked the plant on March 14 and 15. It said Mr. Kan and other officials began discussing a worst-case outcome of an evacuation of workers at the Fukushima Daiichi plant. This would allow the plant to spiral out of control,releasing even larger amounts of radioactive material into the atmosphere that would in turn force the evacuation of other nearby nuclear plants, causing further meltdowns."  

I am REALLY surprised by all this. I mean is it possible at all that a meltdown in a nuclear plant can really trigger other nuclear meltdowns in other nuclear plants? Can anyone provide with any scientific reports that shows that this is possible? Nuclear plants are at several kilometers of distance one from the other. I just cannot see how one can affect the other.

Many thanks.

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Dogs_In_A_Pile
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Short answer......no

mammamia wrote:

I am REALLY surprised by all this. I mean is it possible at all that a meltdown in a nuclear plant can really trigger other nuclear meltdowns in other nuclear plants?

<snip>

Nuclear plants are at several kilometers of distance one from the other. I just cannot see how one can affect the other.

Many thanks.

mamma -

In and of itself the answer is no.  Each plant is designed with its own control room to operate completely separate support systems.  Some plants do have some cross connect capability in case of "normal" or anticipated emergencies.

The problem at Fukushima Daiich was that there were three separate, significant accidents going on simultaneously.  While each plant was staffed for emergency response, the problem at one of the plants was so severe that the radiation levels were dangerously high at the other plants' control rooms.  And don't forget, what they were responding to was far beyond any "normal" emergency.

The short answer is no, a meltdown at one plant won't directly cause a meltdown in another, but it may result in radiation levels in an adjacent plant that prevents or hampers casualty response that eventually leads to damage in the plant that otherwise would have been able to be protected and placed in a safe and stable condition.

Also - the Fukushima Daiich units were within yards of each other, not kilometers.

Hope this helped....

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Dogs - Ok, so we are

Dogs -

Ok, so we are speaking about separate plant inside the same basic facility.  But above it also says:

The report quoted the chief cabinet secretary at the time, Yukio Edano, as having warned that this “demonic chain reaction” of plant meltdowns could have resulted in the evacuation of Tokyo, 150 miles to the south.

“We would lose Fukushima Daini, then we would lose Tokai,” Mr. Edano was quoted as saying, naming two other nuclear plants. “If that happened, it was only logical to conclude that we would also lose Tokyo itself.”

In other words from what you say I gather that the "Fukushima Daini" and the "Tokai" are two separate power plants all in the same facility (both in Fukushima Daiich).

We are not suggesting that (bringing this a bit nearer to home) France have 50 nuclear reactors around the country, and the meltdown of one (in Camargue - I am making this up) could cause the meltdown of another (in Champagne). Mamma Mia! That would really be a bit too fiction and not enough scientific.

Thanks for answering, thanks for taking the time.

mm

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Dogs_In_A_Pile
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mammamia wrote: Dogs

mammamia wrote:

Dogs -

Ok, so we are speaking about separate plant inside the same basic facility.  But above it also says:

The report quoted the chief cabinet secretary at the time, Yukio Edano, as having warned that this “demonic chain reaction” of plant meltdowns could have resulted in the evacuation of Tokyo, 150 miles to the south.

“We would lose Fukushima Daini, then we would lose Tokai,” Mr. Edano was quoted as saying, naming two other nuclear plants. “If that happened, it was only logical to conclude that we would also lose Tokyo itself.”

In other words from what you say I gather that the "Fukushima Daini" and the "Tokai" are two separate power plants all in the same facility (both in Fukushima Daiich).

We are not suggesting that (bringing this a bit nearer to home) France have 50 nuclear reactors around the country, and the meltdown of one (in Camargue - I am making this up) could cause the meltdown of another (in Champagne). Mamma Mia! That would really be a bit too fiction and not enough scientific.

Thanks for answering, thanks for taking the time.

mm

mm -

Without having access to the full report quoting the Cabinet Secretary, I don't know the context in which he is speaking.  But if he is saying that the accident at Fukushima Daiichi would be the direct cause of meltdowns at Fukushima Daiini AND Tokai he is flat out wrong. 

Now if he is postulating that damage to the plants at Daiini and Tokai caused by the earthquake had progressed to an accident severity on the order of the damage at Fukushima Daiichi, then he may closer to the mark.  But we know that didn't happen. 

Calling it a "demonic chain reaction" of meltdowns as if they were dependent on the Daiichi accident is sensationalist and a page right out of Arnie Gunderson's drama playbook.

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