Comments on: A Fairy Tale

By: J. Strupp

J. Strupp — Mon, 22 Feb 2010 22:09:14 +0000

http://www.bloomberg.com/apps/news?pid=20601087&sid=aUaFf71VVrR4&pos=7

By: J. Strupp

J. Strupp — Mon, 22 Feb 2010 03:07:39 +0000

“They’ve steadfastly refused to take any steps to resolve the real estate & banking collapse they had back nearly 20 years ago.”

….and this is the primary reason for Japan’s lost decade.

Keep in mind that my point was not to justify the sustainability of Japan’s (or the U.S.’s) long term debtload, I was simply stating that high debt/GDP ratios (exceeding 80% GDP) can be used over a fairly long period of time in order to buy time while the private secotr deleverages. Of course, if financial markets aren’t resolved, all the fiscal stimulus in the world isn’t going to solve our problems (like Japan).

My comments regarding health care wasn’t directed in support (or opposition to) Obama’s health care plan. Health care reform is the single-most important issue in fixing our long term deficit woes. Everything else is minor in terms of effecting our long term fiscal health.

By: Shoebox

Shoebox — Sat, 20 Feb 2010 18:26:10 +0000

Toren is right. Japan has only a bit more than $1T of external debt. So far, they have been able to finance themselves internally. The US has non of the internal savings rate to rely on. They only have the solution of financing externally or inflating to solve the problem. External only works so long as people see a future. The minute the house of cards loses its first card, the rest fall as well.

Re: healthcare, if it is the solution to the future, why doesn’t Obama implement the $500B of cost savings he’s found in Medicare and Medicaid? Nothing is preventing that from happening. Secondly, if it’s such a great idea, why didn’t the Dems just line up behind it without requiring all of the extortion payments?

By: Toren

Toren — Sat, 20 Feb 2010 02:31:06 +0000

The Japan situation is bad and amazingly poorly-known. They’ve steadfastly refused to take any steps to resolve the real estate & banking collapse they had back nearly 20 years ago. This decision resulted in their famous “lost decade,” (which at this point is closer to “decades”), and have relied on spending coming from the notoriously high personal savings in Japan. The older folks have been drawing down those savings and pumping them into the economy to pay for survival and to support their leech-like children, but the well is running dry. When that happens (as soon as next year) the Japanese government need their money back from the US.
Expect ugliness.

By: J. Strupp

J. Strupp — Fri, 19 Feb 2010 22:22:17 +0000

“If indeed China is full of treasuries or worse, if China is net selling treasuries, the financing of President Obama’s massive deficits will become a big challenge.”

IF, if.

They’ve been saying the same thing about the Japanese government for a decade now. Still crickets.

The Chinese were net sellers in the last auction but Japanese financiers bought them right up. The Chinese are not going to unpeg the Yuan from the dollar (by selling U.S. treasuries), therefor, snuffing out exports. There’s no evidence that this is happening. The Chinese aren’t going to kill exports, GDP growth and endure higher unemployement by dumping treasuries. There’s always a flip side to the coin…..

“If US debt is not absorbed in the open market and no change is made in the debt required due to the huge spending budgets, the solutions become ugly. Dramatically higher interest rates and force inflation are just two of the prettier ways of dealing with the situation. Other options are far less attractive.”

Again, just like Japan?

Look, the 30-year remains quiet. Core-CPI is approaching 1% year-over-year and just posted a negative monthly number for the first time since 1982. All after pumping trillions of dollars of liquidity into the market over the past 2 years. This is the data. Inflation is NOT the short/medium term problem here. Deflaton is.

Want to fix the long term budget woes? Then fix health care and stop worrying about stimulus. We need more of it immediately.