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Is Japan The Next Economic Domino To Fall?

yen

Off The Grids News radio show guest Tres Knippa predicted the economic collapse in Japan and believes the fiscal woes of the Japanese will cause a ripple effect in the United States. The Japanese economic problems mirror those caused when real estate market in America crumbled. When property bubble popped in the Asian nation during 1992, the government also bailed out the banks, instead of allowing the lending institutions to suffer the losses.

As Knippa detailed during the radio segment with Bill Heid and Brian Brawdy, the Bank of Japan lowered interest rates to zero. When the drastic drop in interest rates did not produce the desired economic boost, a plethora of stimulus initiatives were enacted. All of the financial loss and massive spending resulted in Japan incurring a debt-to-GDP ratio of 240 percent. Japan’s outstanding debt is 26 times the revenue of the central government. Like America, Japan will struggle for decades to pay down their debt—if such a goal is even possible.

Japan has the third largest economy in the world. The economic collapse which has stricken the country will ultimately be felt around the globe. The fiscal downfall of Greece may not have had a worldwide impact, but Japan’s financial struggles will carry a far more powerful punch. The country currently borrows half of what it spends each year. Such an unsound decision-making process will continue to increase debt and place a more powerful burden on an already struggling banking industry.

A similar tax-and-spend philosophy is also heralded by Barack Obama and is forcing America to the economic brink too. United States equities could come under serious pressure as a result of such risky practices, Knippa also stated during the Off The Grid News radio interview.

Learn about a virtuous system of free market principles that takes both the economic and moral high ground.

On May 23, a 7 percent stock market sell-off occurred in Tokyo. The drop led to moderate decreases in other Asian countries and Europe. Chinese manufacturing, one of the few healthy business sectors of late, is showing signs of faltering.

Once word of the manufacturing drop-off spread, shares “came under pressure” on the Asian trading market. The Sydney index fall about 2 percent and the Hang Send Index in Honk Kong dropped 2.4. The Euro Stoxx 50 Index of blue chip stocks also fell 2.5 percent. London’s FTSE 100 dropped 2 percent as well. The Dow Jones industrial average, the Nasdaq, and Standard and Poor’s 500-stock index also sagged on May 23.

Japan’s Economy Minister, Akira Amari, had this to say when he attempted to calm fears at the close of the market on Thursday:

“The Japanese economy is staging a sound recovery, and there is no need for panic. The plunge is not exceedingly large, and stock prices in China, where the shock originated, have not fallen so much either.”

When lower-than-expected growth in China’s manufacturing figures sends the stock market into a tizzy, the global economy is far too vulnerable.

Tres Knippa was among the first to realize that Japan was heading towards extremely rough economic waters and understood the international fallout which would inevitable occur. Knippa had this to say about the uncertain fiscal times which lay ahead:

“Like I said, Greece doesn’t matter. Japan does matter. That’s a massive, massive financial center, big banking center, and I think they have real problems coming their way sooner rather than later—banks too—and the electorate voted for it. They elected a new prime minister who I think has set the fuse on their debt bomb. So as Shinzo Abe [Japan’s Prime Minister] tries to weaken the yen—he said flat-out ‘I want to weaken the yen and generate inflation’—he is creating… all those imports now cost more, most notably energy. Why would you do that if you have a current account deficit? This makes absolutely no sense to me.”

Knippa’s observation that Abe sees a weakening of the yen as an opportunity to increase exports appears extremely valid. Abe’s plan seems to be imploding upon itself due to an ongoing fuss with Japan’s biggest export partner—China. When expanding upon the increasing animosity between Japan and China, Knippa stated:

“I’ve got friends in China who’ve sent me pictures of car dealerships where they have to have night security watchmen because they are Japanese companies—Nissan, Honda, things like that—because people are so angry at the Japanese, they’re throwing rocks at the cars and trying to break the windows and things like that. The export market to China is in real problems.”

tres knippa

Tres Knippa

The wounds between the two nations and the United States which occurred during World War II took a long time to heal, but only a short while to begin unraveling. Prime Minister Abe appears to be attempting to amp up patriotism and deflect from poor governmental decisions. The renewed sense of nationalism being pushed includes a plan to enhance Japan’s military while discussing a possible threat from China and pushing rhetoric about disputed lands in the East China Sea into the limelight.

Another similarity between the Japanese and America is a shortfall in Social Security. The average life expectancy in Japan is 82, the longest life expectancy of anywhere else in the world, according to Tres Knippa. Social Security is the most expensive line item in Japan’s annual budget. Borrowing money to continue to finance the program will only increase an already bulging national debt.

President Obama and the Democrat-controlled Senate should look at Japan’s attempt at economic recovery as an example of what not to do, but they won’t. More Americans are living off taxpayer-funded social programs than ever before in the nation’s history. There are currently more folks accepting a monthly check from the government than leaving for work every morning. Upending such an un-balanced economy would not be a difficult task.

There are simply not enough wealthy people left to tax to replenish the funds currently necessary to fulfill entitlement program obligations. Even if ample trillions existed in the United States, such an infusion of funds would be only a temporary fix. One of the most captivating observations Knippa uttered during the Off The Grid News radio segment was also among the most simplistic. The financial guru said, “Capitalism without bankruptcy is like Christianity without hell. It just doesn’t work … it just doesn’t work.” The “too big to fail” argument (which prompted stimulus programs bolstered by borrowed money) merely added to the fiscal problems in America. To operate a business successfully, companies must assume risk and be allowed to suffer the consequences when hedged bets do not pan out. We can’t raise our children in a riskless bubble. If we continue to function as a nation in such an environment, sooner or later someone is going to happen by with a very sharp pin.

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