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The Sovereign Debt Crisis Endgame: Japan Makes Another Move!

December 28, 2011 by mosesman
2011 Trade Balance in billion ¥ . Source: http://www.testosteronepit.com/
  • When Japan, the 3rd largest economy in the world, goes under, will the rest of Asia escape? I don’t think so, unless you are living off the land in some fishing village! The world is doomed !
    –
    The Endgame: Japan Makes Another Move
    by Wolf Richter,  www.testosteronepit.com
    It’s a doozie. On December 24, the cabinet approved a draft budget for fiscal 2012 whose headline numbers were horrid enough: ¥90.3 trillion ($1.173 trillion) in outlays, ¥42.3 trillion in tax revenues, and a deficit of ¥48 trillion. 49% of the outlays are to be covered by issuing bonds, a record even for Japan. But it gets worse. Accounting shenanigans gloss over the fiasco by removing two items from the general budget: the reconstruction budget of ¥3.8 trillion and pension payments of ¥2.6 trillion. When they’re included, the deficit jumps to ¥54.4 trillion.
Fiscal 2012 Draft Budget trillion
General budget ¥  90.3
Reconstruction budget, left out of general budget ¥    3.8
Pension payments left out of general budget ¥    2.6
Total budget ¥  96.7
Estimated tax revenue ¥  42.3
Deficit to be funded by borrowing ¥ -54.4
Percent of budget to be funded by borrowing 56.2%
  • The Japanese government will have to borrow 56.2% of every yen it spends in 2012. But it gets even worse! Japan regularly passes “supplementary budgets” during the year—four of them in 2011, the last one on December 1 for ¥2 trillion. So there may be a few in 2012 as well, which could push borrowing requirements toward a dizzying 60% of outlays.
    –
    Despite the near-zero interest rate policy the Bank of Japan has been pursuing for years, interest expense on the debt—at 230% of GDP by far the highest in the developed world—will eat up ¥21.9 trillion in 2012, a stunning 51.8% of tax revenues! If yields on 10-year JGBs were to rise from 1% to 2%…. Better not think that way. Keeping yields near zero is simply a matter of survival.
    –
     Funding these deficits and rolling over the gargantuan debt has been made possible by the institutional setup and cohesive psychology of Japan Inc.: 95% of JGBs are held within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, the government-owned Post Bank, financial institutions the government can lean on, and the BoJ. Foreigners hold 5% for decorative purposes.
    –
    But two of the strengths of the Japanese economy that have supported the absurd deficit levels—a high savings rate and a large trade surplus—have collapsed. The savings rate is in the low single digits, and the trade surplus has turned into a ¥2.2 trillion ($29 billion) trade deficit in 2011 through November.
    –
    … for more click here!

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