The entire world economy could 'go Japan' - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 15 May 2012
The entire world economy could 'go Japan' A  A  A

Baltimore, Maryland

The Dow sinking.

Gold sinking.

Oil sinking.

Copper sinking.

Yields sinking.

We struggled with this, Dear Reader. We meditated. We prayed. We drank heavily.

And finally...we overcame the rank desire to say: "We told you so!"

As you know, Martin Wolf, at of the Financial Times, is the voice of The Economics Establishment. All that is great and good in the field - which isn't very much -- is given voice by Wolf. Then, it is acceptable for policymakers, Treasury ministers, and central bankers, not to mention the people you talk to at cocktail parties.

And lo! Here cometh the neo Keynesian economist. What saith he?

He says the world is drifting towards Japan.

Of course, that was the message 10 years ago from a certain feral economist who will not be mentioned. He maintained the Japan was a leader, not a follower...and that the US would follow in Japan's footsteps...with about a 10-year lag.

He even wrote a book on the subject, with Addison Wiggin: "Financial Reckoning Day."

Where he got these ideas, we don't recall. What we do recall is that almost everyone laughed at him. "Japan?" they said. "The US is nothing like Japan. We have a dynamic, robust economy. We have Lehman Bros., Bear Stearns and Countrywide "low doc" mortgages. We have Alan Greenspan. And George W. Bush. We have "mission accomplished" in Iraq. We have Silicon Valley, Bernie Madoff and a housing boom. Japan has none of those things. Ha. Ha."

But now, the last laugh is on the other foot!

Japan's market topped out in 1990. The US market topped out - in real terms - in 2000. Thereafter, Japan saw on-again, off-again recession...sinking prices, generally...and slumpy conditions. The US economy staged a limp recovery in the '02-'03 period...then gave investors a bubble head-fake. Now, it's back to the slump...

...and now, both Europe and America are looking more Japan-like every day.

Martin Wolf explains:

On May 10 2012, the yield on the German 10-year bund was 1.44 per cent, on the US 10-year Treasury was 1.85 per cent and on the UK 10-year gilt was 1.9 per cent. These are extraordinary numbers. They are particularly striking in the cases of the US and UK, which unlike Germany, run very large fiscal deficits and are experiencing very rapid increases in public sector indebtedness.

This combination of falling government bond rates with very rapid rises in public sector indebtedness reminds us, of course, of the experience of Japan since 1990.

At the end of 1990, when its "bubble economy" went pop, the Japanese government's 10-year bond was yielding 6.7 per cent. As the economy subsequently declined, deflation took hold and fiscal deficits and public debt exploded. But yields on 10-year Japanese government bonds (JGBs) fell to close to 2 per cent in 1997 and then, with sizeable fluctuations, to troughs of 0.8 per cent in 1998, 0.4 per cent in 2003 and, recently, to 0.9 per cent. In short, the worse the Japanese government's present and prospective debt position has become, the lower the interest rates on JGBs has also become.

Similarly, in July 2007, just before the beginning of the crisis and consequent explosion in fiscal deficits and debt, the US 10-year Treasury yielded 5.1 per cent. Now, almost five years later, the bonds of this alleged fiscal basket case yield less than 2 per cent. Again, in the UK, another supposed basket case, with huge fiscal deficits and a slipping austerity programme, yields have fallen from 5.5 per cent in July 2007 to below 2 per cent.

What does it mean?

Well, if the US and Europe are following Japan ...and Japan is going nowhere...then three of the world's large major areas are dead in the water.

And if that is the case, you can expect the entire world economy to "go Japan."

That will mean lower commodity prices. A lower price of oil. A lower price of gold. Lower interest rates - yes, look for the yield on US 10-year notes to drop below 1%. Bad unemployment figures. Low...or negative growth...falling real estate prices.

...and probably a stock market crash.

Hold onto your hats!

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*** Well, the Yahoo! guy 'embellished' his resume a little. Big deal. Really, we're surprised to see people make such a fuss about it. After all, who can honestly say they haven't put a little positive spin on their own achievements. We have!

But let us rush to clean up our credentials before Dear Readers make a federal case of it.

Okay...on our age. It says we were born in 1959. Must be a typo. We were really born in 1953...okay...'48.

And, it says we attended Harvard University. Well, yes...we certainly did 'attend' Harvard... But through some bureaucratic mix-up our name was never on the official student list and our diploma must have gotten lost in the mail.

As for the Pulitzer Prize, we wouldn't say that we were awarded the prize, not exactly. There again, it seems to be a case of a slight mis-wording. "Pulitzer Prize-winning" describes the quality of our widely recognized, at least in the office here.

And we didn't exactly invent the Post-It note. We just invented something like it, with scotch tape and a piece of paper. Same idea.

And, okay, did we really "win" the Nobel Prize in economics? We probably shouldn't have used the word "win." We were nominated...well, mom thought should have been nominated. She was putting us "in the running"...or something like that.

There, we hope that clears up any misunderstandings.

*** How do you like that? A guy comes from Brazil. He makes billions helping Zuckerberg launch Facebook. And then he leaves the country. You'd think he'd be more grateful. Or at least more sentimentally attached to the land that gave him so much loot.

But no. Edouardo Saverin is pulling out of the USA. Bloomberg reports:

Eduardo Saverin, the billionaire co - founder of Facebook Inc. (FB), renounced his U.S. citizenship before an initial public offering that values the social network at as much as $96 billion, a move that may reduce his tax bill.

Facebook plans to raise as much as $11.8 billion through the IPO, the biggest in history for an Internet company. Saverin's stake is about 4 percent, according to the website At the high end of the proposed IPO market capitalization, that would be worth about $3.84 billion. His holdings aren't listed in Facebook's regulatory filings.

Saverin, 30, joins a growing number of people giving up U.S. citizenship ahead of a possible increase in tax rates for top earners. The Brazilian-born resident of Singapore is one of several people who helped Mark Zuckerberg start Facebook in a Harvard University dormitory and stand to reap billions of dollars after the world's largest social network holds its IPO.

But the rich are doing it all over the world.

A report from London tells us that the French are moving to town. France's new president has pledged to raise income taxes on the rich 0020 to 75%...and to boost France's wealth tax too. Wealthy French people are buying houses in South Kensington to escape.

As for the rich in Argentina, they've been making tracks for many years. As soon as they get some money they buy an apartment, in Miami!

Here in Baltimore, wealthy people have been getting out of town since the top in real estate in 1927.

And now, the rich are leaving Maryland too. Governor O'Malley says "wealthy people can afford to pay a little more in taxes..."

Well, yes, they can afford it. But that doesn't mean they will like it.

"We're moving to Florida," says an old friend.

"Wait for me," says your editor...

Meanwhile, the Irish and Spaniards are leaving their homelands too. Money is the reason. But smaller amounts of it. There are few jobs in Ireland or
Spain, so they're leaving to find work.

Even the Chinese are jumping ship. No kidding. Taxes are low in China.

Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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3 Responses to "The entire world economy could 'go Japan'"


May 16, 2012

It is rediculous to read the "Daily reckoning by Bill Bonner" I haven't seen any such newsletters which is so negative. It is like the old story of boy keep on telling "Tiger is coming.". So if you keep on telling world economy is going to crash - may be in 10 years once it will crash!! It is no way suited with the intelligent, rational analysis by other equity master related analysis!!
Just wondering why this newsletter is associated with equitymaster!!



May 15, 2012

history repeats, there is raise then a plateauing and a downward slide. greed is the root cause for all the malady faced by the human race. another malady is democracy. we neither learn nor we teach our younger generation the real truth and then we are not capable of exercising our fundamental right as humanbeings our freedom and such other values. anyway let us be part of this party and try to find something positive to atleast avoid crying over spilt milk.


surajit som

May 15, 2012

people who have to look at the economic outlook are not very fortunate. good old days of alan greenspan are gone for ever.but to do it ,one has to be a consummate writer. bill bonner does it exeptionally well. humour,irony ,contrast,poem-like lines and humane.

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