via gainspainscapital
The Great Debt Crisis of our lifetimes may be just around the corner.
Japan is the grandfather of debt and central bank insanity. The U.S. first hit a Debt to GDP ratio of 100% in 2015. Japan did this back in 2001. The U.S. first introduced Zero Interest Rate Policy (ZIRP) and Quantitative Easing (QE) to combat its debt issues in 2008. Japan introduced these policies in 1999 and 2001, respectively.
Since that time, Japan’s central bank, the Bank of Japan, or BoJ, has effectively nationalized Japan’s entire financial system. Today, the Bank of Japan:
Owns over 50% of Japan’s debt.Is the largest shareholder of Japanese stocks in the world.Is a top-10 shareholder in over 90% of the Nikkei 225.Has a balance sheet that is larger than the GDP of Japan.
All these interventions have allowed Japan to accumulate a mountain of debt that surpasses anything in history. Japan has a Debt to GDP ratio of 215%. Paying interest on the debt is Japan’s second-largest outlay (behind social security), accounting for 24% of the country’s federal budget.
Put simply, as bad as the U.S. looks from a debt/monetary insanity perspective, Japan is exponentially worse. And by the look of things, it will be the first country to enter a debt crisis.
You see, nothing is free in finance. Not even for central banks. And when a central bank constantly intervenes in the bond markets, it usually ends up sacrificing the country’s currency (the famous “inflate the debt away” approach).
ince it ramped up its bond market interventions in 2012. As a result of this, the Yen has collapsed over 50% since that time. And as I write this, the Yen is sitting right at critical support. Once it takes out this line, it will likely enter a free-fall.
How bad is this situation?
Japan is now actively intervening in the currency markets to defend the Yen. And by the look of things, a crisis is just around the corner: Japan just spent a RECORD $52 BILLION in a single day defending the Yen last Thursday.
In fact, the U.S. was forced to do a backdoor bailout of Japan last week by selling Euros to buy Yen. This marks the first intervention the U.S. has made in Japan’s currency markets since the Asian Financial Crisis of 1998.
To be clear… Japan, the fourth-largest economy in the world, is on the verge of a debt crisis. Things are so bad that the U.S. is now actively intervening in the currency markets to prop up the Yen for the first time in almost 30 years.
