Japan The Sleeping Sovereign Debt Crisis Giant

Interest-Rates / Global Debt Crisis May 15, 2010 - 10:03 AM

By: Bryan_Rich

Over the course of this year in my Money and Markets columns I’ve presented some compelling reasons why the euro zone and the euro were in for a life threatening crisis. And despite the general consensus along the way that the problems in Greece were contained and that dips in the euro should be bought, I maintained that the euro was in a no-win situation.

Then last week, I suggested that because of the systemic threats represented by the PIIGS countries, Germany and the ECB had no choice but to go all-in to try to save the monetary union.

And last weekend, that’s exactly what they did!

They went all-in, throwing massive funds and dangerous guarantees at the problems, and printing money to support it.

Make no mistake. This is not a bailout. A bailout implies that their response is a problem solver. Not so. Their response is a desperate attempt to stabilize what was clear to European officials … a death spiral of the 11-year old European monetary union.

So what’s next?

One thing is for certain: The sovereign debt crisis will not stop in its tracks.

With the rule book in Europe thrown out like last week’s fish, the euro is in devaluation mode and so is the debt of all euro members. When it’s all said and done, likely years from now, the euro may exist in name, but it will be composed of different members and different rules … i.e. a new currency with an old name.

Now, the focus turns to the UK, the holder of the biggest budget deficit of the G-7 world and the most rapidly deteriorating debt load since the financial crisis of 2008 unraveled.

But I’ve already warned about the UK as the next wobbly domino.

Today, I want to go into more detail about the country that could prove to be the BIGGEST domino to fall … with a gigantic global quake.

Japan, in Trouble …

Take a look at the table below. Notice the aggressive growth of debt across nine advanced countries since the financial crisis and global recession set-in. Also notice which country holds the most government debt in the world. By far — it’s Japan.

General Government Debt



In looking at this table, it’s no secret how important it is for leadership in these countries to demonstrate a credible plan to reduce deficits and growing debt loads. All of which was a result of their massive policy responses to the near global depression.

The key word in the above paragraph is “credible.â€