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China slowdown v Japanese Debt


MrB
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Which will have the biggest and very significant impact on the global economy over the next 3 years?  

30 members have voted

  1. 1. Which will have the biggest and very significant impact on the global economy over the next 3 years?

    • China slowdown
    • Japanese debt
    • Non of these will have a material impact


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People like Rogers, Chanos, etc are very worried about the impact a hard landing will have on the global economy. These days there are frequent items in the press that can be considered bad news.

See Liberty's recent link http://www.bloomberg.com/news/2011-11-23/china-central-bank-lowers-reserve-ratio-for-some-banks-by-50-basis-points.html

 

Bass, Henry, etc are again very worried about the impact the Japanese debt load can have on the global economy.

This morning it was reported that S&P "May Be" close to a downgrage http://www.bloomberg.com/news/2011-11-24/s-p-says-may-be-right-it-s-closer-to-japan-downgrade-as-finances-worsen.html

 

Should an investor be worried or are these non events?

 

Please vote

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Japan, Is a very interesting case study. Its debt to GDP ratio is higher than any of the PIIGS more than twice as high as the US and yet because its debt is almost entirely internally financed it shows no signs of crises. Its stock mkt has lost 75% of its nominal value in the last 20 years but its economy has shown real growth in the same period of time. It experienced the largest real estate and stock mkt bubble in modern history but refused to experience ANY of the short term pain that has been the conservatives recommended nostrum for all economic problems. they have had zombie banks for decades but their culture has allowed them to continue, for getting close to a generation, to admit to mistakes and take losses. The Olympic scandal is just one manifestation of this cultural difference, no one loses face in Japan and very few ever question authority. When was there last a hostile take over in Japan. When was the last time a major corporation announced a large lay off of employees?  Has the Japanese model given worse results for its average citizen than the Western worlds?

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Japan's negative population growth probably a factor

 

How much longer can they finance their debt internally?  At some point external debt financing will be required and then it could turn nasty very quickly.

[/quote Why do they have to borrow outside and as long as its Yen demoninated what difference does it make. China has to buy US treasuries or allow its currency to rise, China and the US are joined at the hip with the level of trade that exists.

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If Japan has to issue more debt to foreigners then there will be much more pressure to cut expediture/increase taxes.  It would become very similar to what Europe needs to do except they don't have multiple countries that need to agree on a plan.

 

I do not think Japan resembles Europe in any way.

 

1. Japan has a trade surplus - except for a few months here and there.

2. Japan has an independent currency and a central bank willing to print if needed.

 

One of the above has to change for Japan to be dependent foreign debt.

 

Vinod

 

 

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