What Could the Republicans Do to the Economy that Could Be Worse than Obama?

[Wonkish1]

He has followed the Japanese model, and, as a result, we should expect the Japanese result: twenty-plus years of stagnation.

1. It's better than the Russian model.
2. You're aware that the effect of the Lost Decades on actual living standards for most people in Japan has been less than dramatic, right?

You might wake up a year or so from now and realize you spoke to soon.

[Wonkish1]

True enough.  Their policies of massive deficits year after year, like Obamanomics, can't go on forever.

Bush's tax cuts and wars contributed way more to the debt than anything Obama ever did.

Repealing his tax cuts and ending his wars would be far more fiscally responsible than anything Republicans have done in the last 30 years.

How does anybody take you seriously?

[Wonkish1]

Serious question: Have you ever studied Japan at all?

They did take the pain. That's what Takeshita popping the bubble before it popped on its own was. Their policies since then haven't been particularly good but Japanese people don't socially construct 'living standards' the way you or I would and the Japanese economy is structurally different to the American one, because Japanese society is structurally different to American society.

The main crisis facing Japan is its birthrate, not anything economic.

This is coming from someone that is paying a lot of attention to Japan from a forward looking perspective(again in finance).

Let me detail you what they have coming to them:
1) They are currently more than 200% of GDP in debt
2) The vast majority of their debt is held internally by their own people, businesses, banks, and pension funds
3) After the crash 20 years ago they succeeded in convincing their people to buy up JGBs. So the trade surplus materializes in the pockets of businesses and corporations and that money is put into deposits or into the pension funds and those 2 groups would buy JGBs.
4) So as long as the deficit remained equal to or smaller than trade surplus every year they could finance the budget deficit internally and slowly grow the rate of internal ownership of sovereign debt.
5) The population of Japan is getting older. As older people start drawing on their pensions  the pension system has to sell securities to pay out those redemptions.

6) So you have two things that are moving in the direction of a cataclysmic event in Japan. The first being one day public debt just grows too much for the deficit to remain below the incoming trade surplus. And the second is that eventually this aging population is going to become net sellers of JGBs as they finance their future lifestyle.

7) Where do we stand on both of those? Well immediately following the 2008 financial crisis both of those indicators inverted and started becoming bigger problems for Japan. The deficit is now bigger than trade surplus and Japanese have become net sellers of JGBs not net buyers. Which means that each an every day the problem is getting much worse and more and more JGBs have to be bought by investors in other countries.

So now we just have to look for a catalyst. I can point to several depending on events, but I would be willing to bet that a cluster of defaults in Europe may just get international investors scared of owning a sovereign bond of a country that is more than 200% of GDP in debt. If they demand to much interest for those bonds than a small 200 basis point move in interest causes debt service to outstrip revenues and you have an instant default.

9) This is why Japan goes through finance ministers like you wouldn't believe(if I remember correctly I think 1 even committed suicide).


And the heart wrenching part is that the average Japanese person is so dependent upon the JGB for things like their retirement that a default like this will literally create one of the saddest falls in standards of living of any country I think we will ever see. These people are about to experience a level of poverty that would horrify the average American.