Japan's Crisis Has Arrived? Japan Has First Trade Deficit in 32 Years!

The floodgates are creaking. If Japan needs foreign loans to float the government debt, the country is sunk. The other option is to destroy the value of the yen.

Will the Japanese public stand hyperinflation? If interest rates go to just 3% they would consume ALL of Japan's tax revenue. Even doubling the Sales Tax won't help.


Mish Shedlock reports in Japan Faces Moment of Truth:

Japan is in deep serious trouble the moment it enters a sustainable period of negative or neutral current account balances. If Japan becomes dependent on foreigners to finance rollovers on its debt either the Yen sinks or interest rates rise. Interest rates at a mere 3% would currently consume all of Japan's tax revenue.

Bloomberg reported; “Japan’s government said it will probably miss its goal of balancing the budget by 2020 even with its proposed doubling of the sales tax, underscoring the scale of the nation’s fiscal challenges.

The primary budget deficit, which excludes the cost of servicing debt, will be the equivalent of 3.1 percent of gross domestic product for the year through March 2021, the Cabinet Office said in Tokyo today. Hours after the release, Prime Minister Yoshihiko Noda reiterated his call for opposition lawmakers to engage in talks on boosting the sales levy.

‘To balance the budget, the rate needs to rise further.’”

What did I tell you the last time I wrote against an increase in Sales Tax? No matter how much the taxes go up, the government will always spend what it takes and, no matter how much it is raised, it will never be enough. History shows us that! When the first Sales Tax came in at 3% in the early 1980s they said that was going to fix the budget problems. Guess what? Surprise! It didn't.


Why didn't it? Because they spent the money!

The article above really goes into how stupid and into the outer limits of insanity the current government of Japan is by stating that there are some who think Japan should have a 25% Sales Tax.

Like I predicted, this prime minister, Noda something or other (no need to remember his name, he is a goner) will be gone this summer. Bank on it.

Instead of raising taxes, how about cutting spending?

The Japanese Titanic: Japan's Public Debt Will Surpass ¥1 Quadrillion Yen Any Day Now

How much is a quadrillion? That's a thousand trillion....


Recently, I've been getting my daily money market news fix from the usual suspects: Mish Shedlock, Karl Denninger and Mad Max Keiser but there's another blog that I've found that hits the mark consistently and updates more than several times a day. It's called Zerohedge. I highly recommend it because the guy that runs it seems to get the scoops on what's going on days and even weeks faster than all the rest.

The latest one rings the alarm bells for Japan once again. Japan's Public Debt is about to surpass ¥1 Quadrillion any day now. Jeez! How many zeroes are there in a quadrillion? I didn't even know without having to look it up.


Let's see that's a one with fifteen zeroes after it. Like this: 1,000,000,000,000,000.


Zero hedge reports in Japan Will Raise More Cash From Debt Issuance Than Taxes For Forth Year in a Row


Japan's marketable public debt, already the largest in the world at $11.2 trillion compared to America's $10 trillion (of course this assumes the whole SSN sleight of hand is funded, which it isn't), is due to surpass ¥1 quadrillion any month now (aka the exponential phase). And that's just the beginning. As Bloomberg reports, "Bond sales to the market will climb to a record 149.7 trillion yen ($1.9 trillion), while the national budget’s reliance on debt for funding will rise to an unprecedented 49 percent in the year starting April 1, Japan’s government said Dec. 24.


The article goes on to stomp on these Keynesian "economists" (read: clowns) who claim that the government should increase spending to pick up on falling consumer spending and loosen monetary restraints (read: print like hell) in order to pump up the economy before a recovery starts:


In other news, and to all the neo-Keynesians out there, we post the following thought experiment: according to the head priest economic growth derives from debt issuance. And since apparently every country (yes, yes, that has its own currency) can issue infinite amounts of debt, why doesn't the US and Japan (and the EU post Eurobonds), simply announce it will monetize, aka print, an infinite amount of debt tomorrow? Shouldn't that lead to global GDP promptly rising by infinity %? Or is there an actual problem with this hypothetical scenario which takes current debt trends to their ludicrous extreme.


Want to see what a quadrillion pennies look like? Here ya go!

Here we have buildings (in front) used for scale at a trillion. They're now dwarfed by the large cube of pennies in back (quadrillion). The large cube is a quadrillion, or a thousand times one trillion. This cube is roughly a half-mile wide and would weigh an astonishing three billion tons.

Translation: Japan is doomed. 2012 and beyond are going to be rough ones.


Happy New Year! If you are in Japan, may I suggest drinking as much as you can, while you can. 

Rock Solid Case For Ron Paul in Two Paragraphs and Facebook

Establishment (Prior to) Ron Paul Victory in Iowa: "The Iowa Primary is the most important election since the establishment of our nation".

Establishment (Post) Ron Paul Victory in Iowa: "Iowa is not significant, these aren't the droids your looking for". (Waves Hand) - Blog commentator


Mish Shedlock gets my award for the best economics blog of 2011.

In today's blog post, he links to a piece he found at the European Disunion Blog and says that this quote is a rock-solid case for the election of Ron Paul in just two short paragraphs.


The post?

Don't want endless foreign wars, but do want a strong military for defense? Vote Ron Paul. Do want bankers to be subjected to greater scrutiny and accountability? Vote Ron Paul. Don't want the government to tow the line of corporate interests? Vote Ron Paul. Do want to be allowed to say and think what you will - even do what you will - provided that it does not harm or infringe upon the rights of others? Vote Ron Paul. 

Ron Paul is the only candidate who does not accept donations from big business - his campaign is funded entirely by individuals. Yet it forms policy from a conservative outlook: pragmatic, rather than idealistic, with any reforms carefully considered before implementation, with a strict doctrine of fiscal prudence to boot. In short, it is the perfect blend for individualistic yet reasoned and cash-strapped America. 


Read more great commentary daily from Mish at the Global Economic Analysis Blogspot. I like it so much that I read it everyday and have it bookmarked.


Also, by the way, Ron Paul is skyrocketing on Facebook while the others are dropping like flies. Check out the Elections Inside Facebook Page:

CLICK ON IMAGE FOR LARGER VIEW

Why I Shuttered my Marketing Agency for Tourism

I had started a new business venture about two years ago. It was a section of my company that was dedicated to tourism and travel and it was a very profitable business actually. Because of my background in the mass media and operating on the receiving end of marketing and advertising companies, I saw how clients were, well, getting ripped off. I knew I do do a hundred times better for clients. I set targets and goals and I saved the clients big money too!


I knew that I could make decent money by arranging huge promotions between client companies for 1/50th the cost of what a major Japanese marketing company like Dentsu or Hakuhodo or even the smaller agencies could do. 


I did arrange many of these campaigns for little cost to my clients. Many were nationwide internet and TV campaigns. Some were huge multi-media tie up with networks, major magazines and non-traditional media. My concept was to find clients that had needs that could be met with a sort of mutual promotional campaign. Everything had to make sense and be organic. Then I spread the costs evenly around to each client. Instead of charging them separately.


So, instead of spending, say $400,000 ~$500,000 (USD) on a campaign (if a sponsor bought it through, say, Dentsu) I could arrange it for $12,000 total or so. I did it too, many times.


Here's a good example:


Domino Pizza Japan wants to get more people ordering online in order to more efficient promote its product and cut down on expenses (telephone ordering is not cost effect nor efficient).


A airlines or foreign tourist board wants Japanese to go to visit their country.


A wine company wants to get the word out on their services.


What should I do? I thought about it and got them together and created a cost effective, mutually beneficial campaign that cost each of these parties next to nothing. 


In this example, I arranged for a vacation to a foreign country for anyone who would join and become a member of the Domino pizza online ordering system. The top winner would get a vacation for two, business class, to a foreign country and hotel. The airline & hotel prize supporting companies would get the massive promotion that goes along with the campaign. The wine company provided all the second place awards: 100 people win a set of quality red & white wine.


The campaign runs for two months!


Domino Pizza prints (get this):
7.8 million newspaper inserts
2 million menus
1.6 million direct email magazine to subscribers
250,000 pizza box top ads
750,000 regular direct mail


Airlines provides 2 business class tickets and 5-star hotel for 4 nights.


Wine company (iwine.jp) provides 200 bottles of quality Coppola wine. 


Cost to Domino if using Dentsu? Approximately $200,000
Cost to airlines if using Dentsu? (considering the reach of ad materials): Approximately $400,000 
Cost to wine company if using Dentsu? Approximately $100,000


My company total charge: $25,000 that's inclusive to all three clients!


You can see the results of this campaign here: http://modernmarketingjapan.blogspot.com/2011/09/two-people-win-vacation-business-class.html


(By the way, the campaign ends on 10/31 so you still have time to join the campaign and win the trip to New York!)


Why did I make these types of campaigns? A two reasons: First, I liked the clients. Second, I think Japanese advertising agency business is way too over priced. If I can help to lower advertising costs, then prices might go down and that makes life better for everyone, no?


But I am thinking about closing this business. 

All vacations come complete with helmet and baton!

Why would anyone close a profitable business, you ask? Well, since it was tied to tourism and travel every time I organize a campaign, something bad would happen:


Here's a list of those bad things:


1) Airlines goes bankrupt
2) Riots in destination cities
3) Huge earthquakes, tsunami and nuke disasters
4) Riots in destination cities


and, finally, 


5) Riots in destination cities, bankruptcies, etc., etc., etc., 


You might think I am just unlucky or have bad timing... But I don't. I am very lucky and have great timing that's why I am out of the tourism and travel advertising business...


Things tied up with tourism don't seem like good ideas in this day and age. The world economy is collapsing and things are getting nasty. As Gerald Celente says, "When people lose everything, they lose it." People are losing it all over the world. Read this from my friend, Mish Shedlock: http://globaleconomicanalysis.blogspot.com/2011/10/occupy-wall-street-protests-go-global.html


... I was about to line up an Italian campaign.... But, after watching that video on Mish's page... I think not!

Mish Shedlock Gives Out Blue Ribbon for Nuclear Hype

Mish Shedlock runs the Mish's Global Economic Trend Analysis Blog; one of my favorite blogs in the entire world and a blog that I read religiously everyday. Sometimes Mish really cracks me up too!


In a recent post, Mish has given out his blue ribbon for over the top hype and sensationalist reporting. From Popeye Comments on Reports from Japan Mish quotes from an article entitled, "Who are the Liquidators?":


The prime minister of Japan has said that his government is “not in a position where we can be optimistic” about the Fukushima Daiichi Nuclear Power Plant. 

The sensationalist writer goes on then to conclude:

Is there any logical conclusion to draw from that statement other than that a large chunk of Japan is going to be uninhabitable?


I can imagine Mish throwing his hands in the air in exasperation. He adds: 


There is no point in reading an article beyond such absurd hype. There are hundreds of logical possibilities and conclusions one might draw.

The first thing on my mind certainly would not have been that a "huge chunk of Japan was about to become uninhabitable".


I would have thought something along the lines "the Fukushima Daiichi Nuclear Power Plant is totally destroyed". However, I assumed that well over a week ago.

Note that the author did not even phrase his opinion as a "possibility" but rather as an inevitable "logical conclusion".

When you hit a sentence like that, you know the author is in competition for the blue ribbon for hype award. There is no point in reading further because the author has already completely discredited himself.


Mish is always incredibly informative and entertaining. Read more excellent commentary on Mish's Global Economic Trend Analysis Blog here.

Living in Japan Can be an Advantage for Investors!

The situation in Japan as of today, Feb. 19, 2011 is very uncertain. Japan's financial house is in serious disorder. Our debt is not sustainable. Rumors abound of the coming yen crash. The current prime minister of Japan has an approval rating of a mere 19.9% - a new low - and both the old-school political parties in Japan are teetering as they have been beaten in landslides in recent elections.


What's an investor to do to protect his/her self and their family? Well, incredible as it may seem, my good friend Mish Shedlock tells me that there's a great opportunity for those of us living in Japan to capitalize on this uncertainty.

Mish Shedlock

If the yen drops, and, in turn causes a huge rise in stock and precious metals prices, how can those of us living in Japan benefit?


In his blog of Wednesday, Dec. 22, 2010, Mish lays out Ten Economic and Investment Themes for 2011. About Japan, Mish wrote:


On a relative but not absolute basis I like the US. On a currency adjusted basis I especially like Japan. Here is a hypothetical example: Should foreign equities drop 20% and the US dollar strengthen 10% the loss to US investors would be 30%. Should Foreign investors buy US equities and face a loss of 20% and a 10% rise in the dollar, they would see a 10% loss. US investors of course would see the full 20% loss. Japan looks attractive in nominal terms but strengthening of the dollar compared to the Yen could negate some if not all of that. Equities in general, with the possible exception of Japan do not look attractive.


In a later article, Mish wrote about an Interactive Map of Global PE and Price to Book Ratios:

Except for Japan with a price-to-book value near one, with most corporate debt wiped off corporate books, I see little "absolute value" elsewhere.

The problem with Japan is the Yen. To invest in Japan one needs to hedge that Yen exposure or a declining Yen could wipe out most equity gains.

Aha! I see. So I can take advantage of the yen's problems because I am living in Japan!  I asked Mish to elaborate further and Mish was kind enough to add “Someone living in Japan with expenses in Yen and wages in Yen does not need to hedge Yen exposure as does someone outside Japan. A good currency hedge for someone in Japan, any country really, is gold.”

Mish mentioned that he is now in plays on Japanese equities, the Yen, and gold, adding “There are lots of opportunities in Japan and those opportunities should be easier to find and execute for someone living in Japan than someone living elsewhere.”

Now, do I ever feel better!

Thanks so very much to Mish Shedlock for the great insight. You can read much more at Mish's Global Economic Analysis Blog.

Genius Blogs and Get's 100's of Volunteers, Lawyers & Web Designers in 5 Days!

I've written before that I look up to Mish Shedlock as an inspiration as to how to write and run a no-frills but incredibly interesting blog. I sincerely think that anyone who is interested in blogging needs to check out his site. I think, Mish's Global Economic Analysis is one of the best 3 sites on the Internet! 


(Updates below) 

Currently, Mish is running a campaign, looking for volunteers, and he's gotten 100's of them in only a few days! That's astounding! 


Mish has been writing and blogging for years and he often updates his blog 3 times a day!  (I've done that, as a test, for 3 months straight in 2010 and let me tell you that that is a tough job!)


Mish does it consistently everyday and has been doing it for years. It is this kind of dedication that has built him a massive following. I bet he doesn't realize it, but he is an Internet marketing genius.


In a recent blog, Mish asked for volunteers to help him recall the governor of Illinois! No joke. Talk about taking on an almost impossible task! 


Yeah, well, maybe almost impossible, but if anyone could pull this off, it is Mish Shedlock.  


Mish is so dedicated and so well respected that when blogged about this campaign and asked for volunteers in only 5 short days he has gotten hundreds of volunteers. He has even gotten lawyers to volunteer!!! Now, that is amazing! I thought lawyers were cold-blooded sharks who only cared about cash in hand!




Last Sunday Mish wrote: 


I have exciting news this morning. I am launching a campaign to recall Illinois governor Pat Quinn.

This is not a frivolous effort. It is a serious undertaking and one in which I intend to see to the end. It will take hard work and lots of volunteers but we will be successful.

I need volunteers to ...

• Gather signatures
• Talk to state legislative representatives to get them on board
• Provide legal help
• Design a website
• Help with advertising

I will pay for website hosting and domain names.

We need to be successful because Governor Quinn has plans that will destroy Illinois.
Will You Stand Up To The Injustice?


There are many tasks to be performed and I will need volunteers from every county to gather signatures. I estimate we need about 520,000 signatures. My goal is to get 700,000.

If you can volunteer, time, web design, advertising, legal help, or any kind of general assistance, I would appreciate it.


The campaign seems to me to be doing fabulously. Today Mish added:


I wrote the above call to action post on Sunday. Since then I have had over 100 volunteers including 10 web designers, a lawyer, and numerous business owners. Work on a website is underway. I have secured the appropriate domain names. One business owner who employs about 100 people graciously volunteered services of his legal department.


Like I said, Mish is an expert at this. Not only is he an economic genius, he is a wizard at using the new media to get his message out. The proof is in the pudding. 


Of course, any good blogger needs good topics and Mish finds them all the time. This current campaign to recall the governor of Illinois is Mish's idea, but the absurd actions of the governor himself give a fertile mind like Mish's ton's of great ideas.


Get this: The governor of Illinois wants to raise personal income taxes 67%!


In Mish's own words; Tax insanity in Illinois is now official. Governor Pat Quinn signed off on a 67% hike in personal income taxes and a 46% hike in corporate taxes the moment the bill hit his desk.


Now Mish is working to recall the governor! 

Unnamed Illinois businessman's reaction to Gov. Pat Quinn's 

plan to raise personal income taxes by 67% 

and corporate taxes by 46%

I know this is serious business but I couldn't help laughing at the extreme stupidity of the governor of Illinois. If you are from Illinois, or live there currently, you won't find this funny at all... If you are in another state or country and watching this insanity from afar, then this is spectacularly hilarious! 


Mr. Governor, all I can say is that when the Japanese are laughing at you (unless you are a Hollywood stand-up comedian) then you have problems... Usually jokes don't translate well into other languages, but you are a joke that will be understood the world over! 


Read Mish's take on this tax hike here.


Thank God there's people like Mish running around! Go get 'em Mish. See more on Mish's campaign here! Volunteer if you can!


Update 1: I wrote this blog 12 hours ago. In the meantime, Mish has now gotten over 200 volunteers! 


Update 2: This message was sent to me by Mish himself:

Eddie & JoBo Show - WLS 890 - 8:05 PM Saturday - I 'm on Discussing Governor Quinn Recall

Mike,

I received an email moments ago from Eddie Volkman at WLS AM 890 Chicago asking me to be on for a live 18-20 minute segment tonight. The discussion will be on Governor Quinn, the tax hikes, how those tax hikes will impact the state of Illinois, and what we can do about it.

Hey Mike...

I'm Eddie Volkman from "The Eddie & JoBo Show" now on WLS-AM, 7-9pm Saturdays. Wondering if we could get you on with us to talk about your Quinn recall. The whole tax thing is obviously a huge topic right now and listeners are fuming. We'll be talking about it in the 7 o'clock hour tonight. Sorry for short notice but I came across your blog and it's quite intriguing! Thanks!

Eddie Volkman

Click here to listen live

Call in 312-591-8900
Or text "WLSAM" to 68683
or tweet to @wlsam890

Tune in, it should be fun.

Mike "Mish" Shedlock
http://player.streamtheworld.com/_players/citadel/?sid=1044 

More From Mish Shedlock

Folks, I'm sick and in bed, but I thought you'd enjoy this by Mish Shedlock:

Japanese Politicians fed up with Deflation, Challenge BOJ Independence

Things are simmering once again in Japan. The Yen is approaching all-time highs and Japanese politicians have had enough of deflation. Another round of quantitative easing is now on the front burner.

MarketWatch reports Bank of Japan may buy asset-backed paper

Japan's central bank may announce plans to buy asset-backed securities when it issues its policy decision later Tuesday, the Nikkei business daily reported. The newspaper had reported earlier in the week that the Bank of Japan may expand its low-interest loans to financial institutions. But in the report Tuesday, the Nikkei said "a growing number of board members argue that the bank should go further" and begin buying securities backed by loans to small and medium-sized enterprises. The report, which didn't cite sources, said such a move would be aimed at making more funds available to the private sector.

BOJ Independence Under Attack 

Bloomberg reports BOJ Independence Challenged as Deflation Continues

Increasing risks to Japan’s recovery prompted what may become the biggest threat yet to the Bank of Japan’s independence as politicians seek to redress its failure to end the deflation entrenched in the economy since 1998.

Your Party, an opposition group, plans to submit a bill in the Diet session running through December that would give the government a greater role in BOJ policymaking. Ichiro Ozawa, a former challenger to Prime Minister Naoto Kan whose calls for currency intervention and enlarged fiscal stimulus have been adopted by Kan, made a similar proposal last month.

The debate comes after BOJ Governor Masaaki Shirakawa refused to expand purchases of government bonds this year even as deflation persisted. The bank may today instead widen a 30 trillion yen ($358 billion) program providing loans to banks, according to 14 of 17 economists surveyed by Bloomberg News. The effort has so far failed to stanch a contraction in lending.

Shirakawa’s intransigence has incurred the ire of politicians pressing the bank to boost efforts to end deflation, which erodes corporate profits, makes debt harder to pay back, and enhances the yen’s lure by lifting its purchasing power. The GDP deflator, a gauge of prices across the economy, has fallen 14 percent since 1997, according to data compiled by Bloomberg.

“Japan is the only industrialized country which has had consumer price changes of minus or zero over the past decade,” Keiichiro Asao, head of policy research at Your Party, said in an Oct. 1 interview in Tokyo. “If the central bank is a guardian of stable prices, it shouldn’t allow price declines.”

The BOJ, which has kept its benchmark interest rate at 0.1 percent since December 2008, currently purchases 1.8 trillion a month of government bonds. At the current pace of buying, the bank’s self-imposed ceiling for bond holdings will be reached in 2014, according to Barclays Capital estimates.

The Federal Reserve, by contrast, has eschewed any such ceiling and indicated last month it’s prepared to add to its holdings of U.S. Treasuries. At the same time, the Fed’s balance sheet, at $2.3 trillion, is smaller than Japan’s relative to the size of the economy, at about 16 percent, according to data compiled by Bloomberg. The BOJ holds about $1.5 trillion, or about 26 percent of Japan’s GDP.

Bank Balance Sheets Compared

ZeroHedge Asks Is The BOJ Preparing An Imminent Announcement Of Its Own Latest (And Certainly Not Greatest) QE?

The BOJ's balance sheet, which has been relatively flat when compared to peer central banks, especially since FX interventions will likely be sterilized, is about to explode and the JPY will plunge once the carry traders reorient themselves to shorting the original carry currency of choice.

As a reminder, here is how Japan has demonstrated remarkable restraint (at least recently) as everyone else has been printing.



In other words, the BOJ will continue to use FX intervention as an acute weapon every time the USDJPY drops below 83, and gradually implement asset-backed purchases as the chronic intervention against endless deflation.

Because this time it will be different. And, because, as the G-7 people promised, and everyone believed them, there will be no competitive devalution. Ever.

Politicians Know This Time is Different!
It's hard not to laugh out loud at the sarcasm in the last paragraph above.

Not only did QE fail to do what the Bank of Japan wanted (raise prices), QE has also failed to stimulate bank lending as Bernanke wants. Moreover, Japan's currency intervention efforts have not accomplished anything, ever.

But yeah... this time is different, because .... politicians know better!

By the way, this exercise in stupidity by all the central banks in question, shows just how hard it is to destroy a currency, even when you try (except against gold of course).

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com

Debt! Which is Worse Off Japan or USA Part II

In a former blog, the question was asked, "Which is worse off, the USA or Japan, when it comes to debt?"

I asked my friend and world famous investment advisor Mish Shedlock about it and he graciously replied:

Japan is worse off - Their problem hits first (Japan already has debt at 190% of GDP - USA debt 87.6% as of May 15, 2010). Also Japan is much worse off because of demographics – a much older population... Timing is the key! The USA actually has some time to do something (even if we know they won’t) 


Now, Japan expert Marc Abela (who is running the Mises Institute site in Japan chimes in:

Mish is unfortunately wrong (IMHO) this time around (as in "180 degrees" wrong) on the situation if his conclusion is that "Japan is worse off" (note that I only agree with Mish's viewpoint "once in a while"... I also tend to disagree with him with respect to his approach to the "deflation/inflation" argument as well). But I have a tremendous amount of respect for his work so far.

To lay it out like it is:

The company called the "Japanese government" has debt of up to 200% times that of the company called the "Japanese economy" (GDP) but the "Japanese economy" (i.e. Japan as a country) in aggregate still has plenty of savings (both in local and foreign denominated assets).

Now the company called the "USA government" located within the USA feeding (as in "parasiting" - just like any "government" does) on the company called the "USA economy" has a debt of up to 100% of the country's overall GDP but:

Point 1. 100% of that US debt has been borrowed from abroad - mostly because the local domestic pool of savings has been completely (totally) depleted years ago.

Point 2. 100% of the debt in the USA is very short term (3 months? 6 months? type of material) - a lot shorter than in most countries (even some in Europe believe it or not).

Point 3. Finally most of the GDP numbers in the US (up until last year at least) were comprising of mostly consumption and not much investment (70% versus 30%) where as in Japan the situation is still closer to a 60/40 ratio (if not even better than that? it was even better than that in China a few years ago - don't have the latest data for both countries).

Now let us put things in perspective because a lot of people tend to repeat what most bankers seem to get wrong... regarding...

Point 1: put simply, imagine I (USA) had borrowed from YOUR parents 100% of my $50,000 early salary, and you (JAPAN), had borrowed 200% of your $50,000 early salary from YOUR parents (Japanese citizens). Most wannabe bankers today would argue that "well, 200% versus 100% - Japan is clearly in worse shape". But if your parents still have plenty (loads) of savings (Japan) then YOU can still fuss around quite a bit - while I have to cross fingers that your parents (for mine are totally broke - and my parents already owe your parents as well some amount!) will keep on lending "me" more money (for I borrow from "abroad" - just like the USA does today). As a result JAPAN is in a much better position due to its massive amount of savings (both in domestic/foreign currencies) and local financing of the government debt.

Point 2: Also, time frame, very subtle but quite important, imagine I owe you $500,000 and I promised you the cash "all of it" for next week latest I swear to god - this gives me only 7 days to find the money. The chances I default on that debt are 100% (unless I print my way out of it and get my printer going 24/7 in an attempt to dilute my current pool of paper fiat IOU/promises). On the other hand if I owe you $1,000,000 but I have 10 years to find it then sure, I'm still stuck, but "stuff" can somewhat still happen. The debt in the USA is just like the ARM loans banks were providing to sub-primers, it's in a great proportion "short-term" material - waiting to reset big time in a few weeks? in a few months? As a result the company called the "JAPANESE government" is still somewhat better off - even though it's just a matter of "time".

Point 3: Finally, if I borrow $10,000 from you each year and yearly 70% of that money is spent in me partying building myself pools traveling getting me some plasma TVs and new imported SUVs - chances 10 years later I reimburse and make good on all the money are usually slim. On the other hand if I borrow the same $10,000 from you each year and I only spend yearly 60% on the same kind of stuff - this means I have "invested" what's left 40% like Japan has (which is a 33% increase when compared to just 30% like in the US) by building nets to fish and/or factories towards building "productive" assets, then this usually means I'm still more likely to reimburse my debt. As a result even in point 3, JAPAN is still better off.

As a result, because of 1. mostly foreign borrowing, 2. very short term borrowing, 3. quite poor GDP "I/C" ratio, the USA is in much worse shape than Japan whatever matrix you use - even though yes, sure, just saying "200% versus 100%" may be quite misleading. The USA has today no other option but to print it's way out - unless it finds more suckers (central banks around the world?) to borrow from in an attempt to postpone facing the issue. Wait. Not only that - the above problem was the problem we had "before" 2008, while we still had Bush and Greenspan in office - i.e. we had this problem already while having (supposedly?) a limited republic on our side (ouch) and Ayn Rand's reasoning with us from Greenspan's school (ahem). Now that we have Obama and Bernanke with us - the sky is the limit to the hanabi we can get. Not that I particularly like the combo "Kan/Shirakawa" of course...

.... If the USD drops more and more heavily and faster every month (to 70? 60? 50? 40?) while burping here and there with tiny cardiac surges faking up in the upcoming weeks/months we'll know who was right (Mish or Me)... Now both currencies will drop when compared to commodities that are fixed in volume - so GOLD should rise versus both (all) paper currencies. But assuming GOLD is the non-moving line - one car will be feeling as if it is going backwards much faster than the other one..
.

NOTE! I do not exclude the possibility of "international bullying". This means - I do not exclude the eventuality where the US would simply use its "force/power/army" to keep having Japanese continue lending "more and more" money to the USA (and I do not exclude also corrupted Japanese politicians from accepting this as a temporary solution to kick the can further down the road) - but the more we wait to resolve the current imbalance the more the end result scenario will hit a harder wall.

Japan has been doing everything it could to prevent the USD from losing value over the past 24 months - and I keep insisting, they can't do anything, but most bankers just keep on telling me no Marc you'll see one USD will be worth 110 JPY in a week. Still waiting I am - cares to reply the Yoda in me... :)

Note finally that the more Japan throws their good savings after US consumer debt the heavier the USD will fall the day JAPAN runs totally out of savings. We're witnessing the very first interplanetary "vendor financing" in history. And just like all good "vendor financing" stories - they usually do not end very well. I'll take anyone on the above three points... anytime...