Next F**cked Country? A Prediction

This is from Tom Dyson writing in today’s Daily Wealth newsletter. I offer this because his prediction flies in the face of everything I’ve been hearing in the past few months.

Are You Ready for the World’s Biggest Bankruptcy?
By Tom Dyson

England Slippery Slope
England FailThe media have given London a new nickname: Reykjavik-on-Thames. [Ed: see Iceland’s Gov’t Resigns]

Britain’s economy revolved around banking. British banks hold about $4.4 trillion in foreign debt. The total size of the UK economy is $2.1 trillion. This year, the British government nationalized major parts of the UK’s banking system. In total, the UK Treasury is on the hook for over $2 trillion in potential liabilities, according to an estimate by the Office of National Statistics.

But Britain is NOT going to be the world’s biggest national bankruptcy. The government debt of the United Kingdom is only around $950 billion… or about $15,000 per capita.

Uncle Sam On Life Support
Uncle Sam FailThis week, the United States Treasury sunk another $30 billion into AIG… its fourth bailout. It also put another $25 billion into Citigroup. The Treasury is now on the hook for as much as $6 trillion in liabilities. Last week, the White House produced its new budget. President Obama wants to run a deficit of $1.75 trillion in 2009.

The Treasury will pay for these bailouts by borrowing money. The Treasury borrows money by issuing Treasury bonds. Tomorrow, for example, it will auction three-year, 10-year, and 30-year bonds. This auction should raise around $60 billion.

The “debt clock” measures the amount of money the government owes its creditors. Today, the U.S. debt clock reads $11 trillion. To pay off this debt tomorrow, the government would have to collect $36,000 from every American.

But America is NOT about to be the world’s biggest bankruptcy.

Japan Mauled
pikachu-fail_sm2Of the major industrial economies in the world, Japan’s government is the most indebted.

Since its recession began 20 years ago, Japan has plowed trillions into its banking system via numerous bailout programs. Japan’s mantra is growth without cost. As a result, the Japanese government has built up the world’s most crippling debt load.

The government of Japan owes $7.8 trillion. That’s $157,000 per capita.

We’ve been using government debt per capita to compare the government debts of Britain, the United States, and Japan. But government debt to GDP is the ratio economists use to compare the indebtedness of countries.

The UK has a government debt-to-GDP ratio of 48%.

The U.S. has a government debt-to-GDP ratio of 75%.

Japan has a government debt-to-GDP ratio of 187%.

If there’s going to be a major sovereign bankruptcy, it’s going to happen in Japan. Its economy is a shambles. For years, Japan has relied on exports… but even that’s drying up now. In January, Japan’s exports plunged 47%, producing a trade deficit.

Japan FailPeople talk about Japan as a “nation of savers.” But that’s not true anymore. Japan’s personal savings rate has collapsed from 16% in the early 1990s to 2.2% last year.

Japan has an aging population and no immigration. I can’t see where it’s going to find the money to pay off its huge pile of debt.

Destroy Japan 4 Fun & Profit?
The way to play the collapse in Japan is by shorting the yen. Right now, the Japanese yen is the world’s most popular currency. Traders perceive it as a safe haven. In 2008, the yen was the world’s best performing currency…. Rising 33% against the Canadian dollar, 40% against the British pound, and 19% against the dollar.

yen-attackv2smBack in January, I told you a fall in the yen was all but inevitable. The yen is down 12% since that article. But according to a Merrill lynch report I saw yesterday, large speculators still have a $3.7 billion long position in yen futures. The analyst described it as “crowded.”

The Japanese yen has been in a 40-year bull market. I think a new long-term bear market has just started… and it will end in the bankruptcy of Japan’s government. FXY is the ETF for the Japanese yen. When then yen falls, this fund falls, too. The easiest way to bet on a fall in yen is to short this fund or buy put options on it.

Good investing,
Tom

[Ed: I neither condone nor decry this investment advice. But, it makes you think, no?]

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6 Responses

  1. There is a NYT article on the US debt today (see post at http://euandus3.wordpress.com/2009/11/23/12-trillion-in-debt-living-beyond-our-means/). It hasn’t been just after the financial crisis of 2008 that the US Government has had unbalanced annual budgets… And consider consumer “use” of credit cards? Is there something about our society–about ourselves–that we are missing because we are in it? (e.g. a fish doesn’t “see” its water). I don’t think we are digging deep enough.

  2. It’s OK with me! My readers are visiting you now, you know. I hope they enjoy your site. Keep up the work!

  3. I just stopped by your blog and thought I would say hello. I like your site design. Looking forward to reading more down the road.

  4. Possible CRASH ALERT!

    Confidence is high! Repeat, Confidence is high!

    Get your SH*T together NOW! Get your canned stuff NOW! Get your financial situation taken care of NOW! The time is NOW!

    http://market-ticker.org/archives/852-Whats-Dead-Short-Answer-All-Of-It.html

    Glad I have a farm to bug-out to…

  5. Hi, this is EMS News, Culture of Life News.

    Glad you used my cartoon! My website is emsnews.wordpress.com. Feel free to visit! By the way, world traders do affect the value of the yen but the biggest forces at work are still in Fortress Japan. The Bank of Japan wants a weak yen for export profits. The strong yen is killing Japanese industrial giants who want this REVERSED PRONTO.

    But alas for Japan! Both Russia and China were buying and holding yen in order to force it upwards. This is a long story of diplomacy, world trade and power politics. The ZIRP system of zero interest in Japan worked great until all other central banks doing heavy business with Japan all went ZIRP, too! This killed the ZIRPPY Power in Japan and now, all currencies are being backed by 0% lending which is insane! I say, totally insane.

    HAHAHA. So Japan is now busy trying to buy and hold dollars while China is now releasing dollars from their two trillion FOREX deep cave in the center of the planet’s financial systems. The Japanese hope to cage these dollars and thus, weaken the yen again and this is working…for now.

    Anyway, the Japanese want a sick currency, not a healthy one. Period. End of story.

    • Hi Elaine,

      I checked out MORE ZIRP, MORE TRILLIONS FOR COLLAPSING BANKS

      “Since the system has now collapsed, they pretend this monster is nothing much. And the super-rich tell people like Obama, all he has to do is patch the hole in the bottom of this pit and all the wealth of the world would cease flowing down and vanishing into nothingness. So Obama and before him, Bush, dutifully poured in trillions of US taxpayer IOUs into the gaping maw of the Derivatives Beast and he ate it all. And burped. And demanded more.”

      Love it!

      Thanks for being so gracious about using your artwork. I found it on Google and it was just so perfect! I’m popping an oz of silver in the mail to your PO Box today to say “thanks.” If you don’t own any yet, welcome to the movement to “get physical!”

      Scott

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