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Japan Isn’t Bankrupt

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April 04, 2013 – Comments (6)

The myth still persists so the myth-busting must continue.

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Japan Isn’t Bankrupt
from PRAGMATIC CAPITALISM by Cullen Roche
http://pragcap.com/japan-isnt-bankrupt


I’ll keep this short and sweet.  I’m not a big fan of the Japanese economy at present or what the policymakers are doing to drive the economy/markets higher.  I think they’ve made a mockery of their stock market and that this “wealth effect” is a misguided approach to fixing their woes.  But I am equally critical of those who think Japan is on the brink of bankruptcy.  Japan’s got big problems – being able to meet its obligations is NOT one of them.

First of all, Japan has basically copied the US monetary design.  And anyone who understands the US monetary system knows that the USA can’t just “run out of money”.  Even the most simplistic (erroneous) thinking that the US government “prints” money should lead one to understand that a nation with a printing press can’t default on debts denominated in its own currency. I mean, if you had a printing press in your basement would you worry about your credit card bills?   This should just be obvious.  As Warren Buffett once said:

      “The United States is not going to have a debt crisis as long as we keep issuing our debts in our own currency. The only thing we have to worry about is the printing press and inflation.”

Japan is in the same boat.  Their debt is denominated in a currency they can always create.  So what’s the persistent fuss from the likes of Kyle Bass and some others who keep claiming Japan is on the brink of insolvency?  Even an Austrian economist who criticizes the US government for “printing money” should understand that a nation with a printing press and debt denominated in its own currency isn’t going to go bankrupt.  So why does this myth persist?

Japan’s got big problems and I wouldn’t go near their economy or their markets with a twenty foot pole, but that doesn’t mean they’re on the brink of insolvency.  Saying something that silly might make people think you don’t even understand the most basic institutional structures of the way their monetary system is designed.  As for the USA, it’s the same story, but that doesn’t stop the mainstream media and politicians from constantly talking about how we’ve “run out of money”.  It’s absurd.  And this conversation about whether we “have the money” should just stop.  It’s time to get past the basics and move on to the real discussion – the quality and efficiency of spending, how it’s impacting living standards and is it causing inflation?

The post Japan Isn’t Bankrupt appeared first on PRAGMATIC CAPITALISM.

6 Comments – Post Your Own

#1) On April 04, 2013 at 4:22 PM, L0RDZ (81.98) wrote:

Japan  isn't  bankrupt  but   it  cost  more  to purchase  basic  need things  in  Japan  than  what  most people  earn  for  an  entire  months  pay  for  working  from sunrise  to  sunset...  not  8 hours  but  closer to 16.

Why ???

Because no one wants  to experience  pain...

Good  for the rich....   bad  for everyone else...

Especially when the  music  stops...

 

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#2) On April 04, 2013 at 5:28 PM, Valyooo (99.60) wrote:

Binve,

 

You and I have pretty opposite views on economics.  However, I could not agree more, that a country controlling its own currency, will NEVER DEFAULT.  They can absolutely screw up their economy, but it will not be a default. 

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#3) On April 05, 2013 at 11:58 AM, Imperial1964 (98.29) wrote:

I do believe Argentina prints its own money and did default, 10 years go.  Russia did the same thing a few years before.

It is a political choice whether to default and screw creditors or screw people through inflation.  (Argentina seems to have chosen both).

So, it usually boils down to whether the majority of creditors live within the country or are foreign.

Russia and Argentina screwed the creditors because they were foreign. 

It is also possible for the bond market to freeze up and force the decision between default and hyperinflation. 

That said, I think Japan will choose inflation, so I mostly agree with you.  I just want to make the point that it is often a political decision whether to default or inflate.

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#4) On April 08, 2013 at 3:41 PM, ath002 (< 20) wrote:

Binve, would I be correct in saying that the difference between Argentina and Russia, as the examples given by Imperial and USA and Japan, is that while all four print their own currency, Argentina and Russia were not issuing debt in their own currency, but yes in foreign currency, which they could not print?

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#5) On April 09, 2013 at 3:58 PM, ChrisGraley (29.94) wrote:

"It is a political choice whether to default and screw creditors or screw people through inflation. "

 

Bingo!!!!

 

We have a winner!!! 

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#6) On April 17, 2013 at 2:22 AM, Melaschasm (56.56) wrote:

#3 Got it right.

Although from a practical stand point excessive debt causing inflation is as bad as causing bankruptcy.  So when you hear people fretting about the USA or Japan going bankrupt, there is reason for concern.

#4  I know Argintina had significant debt in foriegn currency, but I think Russia was mostly denominated in rubles.  Another example would be the EU.  

The European Union can print money to meet debt obligations, but chose to force several member nations to make dramatic changes or to default on their debt.  The EU's recent debt problems should be a warning regarding out of control debt in the USA. 

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