All fiat regimes fail from their introduction in 7th century China to the most recent casualty, the late 2000s Zimbabwe dollar. Several are in the final phase of debasement – like the Argentine Peso, Venezuelan Bolivar and Ukrainian Hyrvnia; while countless others are “waiting in the wings” for their inevitable enshrinements in the currency Hall of Shame. For a variety of reasons, the Japanese Yen appears destined to be the first major economy to experience such ignominy in the 21st century; which frankly, could commence in a shockingly short period of time.
Due to Japan’s unique demographics –i.e., the world’s oldest population – it experienced its typical fiat currency asset crash a decade before everyone else; and thus, commenced its hyper- debt accumulation stage a decade earlier. Sadly, Japan’s “demographic hell” is replicating itself throughout the Western world; as in America, whose “deadly dollar demographics” all but guarantee the path toward Japan’s 240% debt/GDP ratio, en route to total dollar collapse. However, America’s case is particularly dire given four decades of abusing the dollar’s “reserve currency” status has made it the principal target of an angry, disenfranchised world in which China, Russia and the new “Eastern bloc” are taking the reins of political and economic power. Thus, to answer the question “Is America the next Japan?” – our answer is YES, to the umpteenth power!
More on that horrifying fait accompli in a moment; but first we have myriad “horrible headlines” to discuss – starting with the aforementioned “Land of the Setting Sun,” whose economy plunged in April to roughly the same level as the post tsunami environment of March 2011. No, that’s not hyperbole – but instead, empirical validation of what we wrote in May 15th’s “Biggest Lie in Financial History”; i.e., Japan is on the verge of total economic implosion. Yes, following yesterday’s announcement of a shocking 14% plunge in April retail sales – resulting from the enactment of a cataclysmic 3% national sales tax increase; ironically, rationalized to “pay for” Abenomics – we learned today that, also akin to March 2011, April household spending and industrial production plummeted by 5% and 3%, respectively. Meanwhile, get this, the CPI surged by 3.2%. In other words, a classic case of “cost push” – rather than “demand pull” – inflation i.e., a typical symptom of a collapsing currency. Consequently, the “Japanese noose is rapidly tightening” and shortly, will not only render Abenomics dead and buried but Shinzo Abe’s political career and the very fate of the Yen itself.
Elsewhere, the global economic outlook has never been worse – particularly when contrasted to the “biggest (manipulated) disconnect of all time”; i.e., the maniacal Central bank fueled explosion in financial asset prices benefitting “the 1%” of society lucky enough to be the recipient of such unearned largesse. In China, history’s largest real estate bubble is in the process of rapidly deflating – as evidenced by yesterday’s comments from the President of its largest housing developer (“the golden era for China’s property market has passed”) and today’s revelation that housing developers are resorting to “buy one, get one free” property deals to avoid marking down prices. Unfortunately, China doesn’t have a FASB trade association to mandate such fraud; but don’t worry, the market will figure it out – and quickly.
Let’s face it wherever one looks the specters of stagnation, inflation and unrest are front and center; as the age of globalization peaked when the fraudulent fiat-generated oasis economy permanently broke in 2008. In Europe alone, youth unemployment rates are as high as 60% in “first world” nations like Spain and Greece, while roughly a quarter of the entire continent sits right at the poverty line. Commercial lending is actually contracting; and when the ECB eases monetary policy further next week, it – like Abenomics in Japan – will achieve nothing but increased inflation and wealth disparity.
Meanwhile as the clueless MSM scratches its head, trying to figure how their unshakeable “recovery” meme gibes with plunging interest rates, the Miles Franklin Blog has described this “mystery” to a tee. In the plainest terms the world is rapidly realizing there never was – nor be – a meaningful economic recovery. In other words, no matter how much governments “massage” data (like today’s news that Britain is joining Italy in including prostitution and drug dealing in its GDP calculations), the fact remains that the world’s cumulative “credit card” has been fully charged up; and thus, credit can’t even be given away no matter how low the interest rate. This is why the U.S. housing market is plunging despite record low mortgage rates, and why Abenomics is decidedly failing.
Due to the cancerous impact of unfettered money printing, the inflation of items we “need versus want” is causing real interest rates to plunge to unprecedented lows; in many cases, like the “fragile five” last year yielding significant currency devaluations. The current “Central banking put” – to take center stage when the ECB eases next week – has caused fixed income portfolio managers to take historically lopsided risks to generate income in a perma-ZIRP world; and consequently, the risks to global financial stability have never been higher. Said inflation is encompassing all aspects of our lives; as just in America today’s headlines include “Chicago considers boosting minimum wage to $15/hour” (it was $3.35 when I was a kid), “Bacon prices soar even more as the pig diarrhea virus is back,” “dust bowl conditions have returned to Kansas, Oklahoma and Texas,” and last but not least, “shale boom goes bust as costs soar.” Regarding the latter, we last week highlighted a 96% reduction of the reserve estimate for the nation’s largest shale oil formation”; i.e., a potential death knell for the latest chapter of unending energy independence hype.
Today alone the “manipulation parade” continues in top form as PMs were again “capped and attacked” at every possible opportunity, whilst stocks as usual were supported. To wit, April’s personal spending decline was the largest in five years; yet again, validating our assertion that “the weather” had little if anything to do with the horrific 1Q GDP reading. Worse yet, consumer “current conditions” fell to their lowest level in six months, whilst the cumulative forward-looking outlook declined as well. However as we have highlighted for the past year, government-generated, statistically insignificant, dubiously calculated “diffusion indices” like the Chicago PMI continue to assert “recovery.” No matter that the all-important employment sub-category declined or that “manufacturing growth” likely ended up in channel stuffed inventories – as such indicators are no more “economy positive” than part-time, minimum wage fast food jobs; as when PPT, Fed, ESF and Cartel algos are operating in razor thin trading conditions, they can make such data “look” as they want especially at “key attack times” like the “2:15 AM” open of the ultra-thin London “pre-market” session, the 8:20 AM EST COMEX open, the 10:00 AM EST close of global physical PM trading, the 12:00 PM EST “cap of last resort,” and even – as was the case last night – when gold attempts to rise during ultra, ultra-thin Globex paper trading. Do you think “someone” didn’t want gold to rise above $1,260/oz.? Look at the last two days’ trading action below and make your own determination?
In recent months, even when paper raids are “on hold,” DLITG or “Don’t Let it Turn Green” algorithms are deployed to prevent meaningful gains. Meanwhile “dead ringer” algos levitate the “Dow Jones Propaganda Average” daily and “mysterious spikes” in the floundering 10-year Treasury yield are generated to make markets look better. Gee I wonder who bought $1 billion of S&P stock futures late yesterday afternoon, prompting the prototypical “hail mary” that had MSM talking heads speaking of how the horrific GDP print was no problem, as it must have been “weather-related.”
Again, we give such “details” not to scare you but empower you to understand the reality of the irreversibly deteriorating global economy and indisputably “managed” financial markets. The former is failing – with no hope until the cancerous fiat currency regime inevitably fails; and the latter manipulated 24/7 to create the polar opposite perception. Not that the disenfranchised “99%” could care less anymore – as on average, they are too cash-strapped to even consider financial investments. However, so long as the “TBTF” banks are buoyed by Fed and PPT-supported investment gains – not to mention, fraudulent FASB accounting rules – “the system” has been able to “hang in there” a bit longer. Ultimately it will be destroyed by the currency collapse inherent in all Ponzi Schemes’ requirement of unlimited expansion; but before it does, those prescient enough to understand what we are speaking of have the once-in-a-lifetime opportunity to protect themselves with real money, trading at valuations well below their respective costs of production.
As for today’s principal topic, we have long discussed the parallels between Japan and the United States; sadly, with no discernible reason to anticipate divergent outcomes. Sure, the how and when will differ; and perhaps, a “black swan” or other unforeseen event will catalyze America’s “Japan-ization” all by itself. However, the fact remains that the Japanese population is on average, 5-10 years older than other “first world” countries; and thus, it should be no surprise that its spending patterns fostered a prototypical fiat currency fostered market crash that much sooner.
Japan’s population is eight years older than America’s; and thus, the fact that its equity and real estate bubbles inflated and crashed ten years earlier is no coincidence. Today, America’s relative age is not much different. However with its average fertility rate hitting record lows – as well as Labor Participation in the all-important 25-29 year age segment, simple demographics suggest an increasingly top heavy population – in both size and economic strength – with fewer youths capable of replacing the voracious 1985-2005 spending of the “baby boomers”; which by the way, not only benefitted from America’s peak manufacturing era, but the heyday of the post- gold standard abandonment credit spree. However, now that baby boomers are exiting their prime spending years – and entering their prime healthcare years – a “giant sucking sound” is starting to be heard in the retail markets which will ultimately yield significant economic deceleration, ceteris parabus. To wit, with 20% of the population currently above 60 years of age compared to 15% in the spending nirvana of 1995 – when jobs and savings were plentiful, and the dollar’s purchasing power significantly greater – the aforementioned deadly dollar demographics are ready to take their revenge on the brief, failed attempt to usurp “Economic Mother Nature” – and then some!
As for Japan’s road to financial hell, debt to GDP was just over 60% when its “economic miracle” ended with the dual equity and real estate crashes of 1989; since the Bank of Japan has embarked on a 25-year mad experiment of unfettered money printing and stock and bond monetization. It took roughly a decade to double that level to 120% and another 15 years to double to today’s 240%. Of course, had Japanese rates not been taken to zero in 1998 – and held there since – debt to GDP would be vastly higher today. And given today’s toxic environment of surging inflation, plunging economic activity, and an aging population, it will be far harder to maintain zero rates going forward.
Unfortunately, the chart below shows a nearly similar trajectory for the U.S.; particularly when one appropriately accounts for the $5 trillion of “off balance sheet” debt the government took on when nationalizing Fannie Mae and Freddie Mac. Also note, that now that the U.S. has “revised” its historical GDP calculation upward with fraudulent assumptions – with the sole aim of making its debt/GDP ratio look more attractive – the correlation with Japan’s growth trajectory is even greater.
Like the Bank of Japan, the Fed took interest rates to zero nearly a decade after its initial market crash; and like Japan, the U.S. faces the prospect of attempting to maintain rates at historic lows as inflation surges, economic activity plunges, and the population ages. Not to mention, the prospect of the dollar’s heavily over-inflated value declining as said “reserve currency” status is gradually – or perhaps, not so gradually – weakened.
In a nutshell, comparisons between the Japanese “poster child” of financial deterioration and America’s ominous economic outlook are not just viable but validated by empirical data. Moreover, the dollar’s “reserve currency” status has nowhere to go but down; and thus, no matter how far the Yen’s purchasing power declines in the coming years it will likely be at least matched by that of the dollar’s debasement. And last but not least, Japan’s manufacturing market share has not declined even close to as much as America’s, while its citizens’ average savings rate is materially higher; thus, further emphasizing just how fragile the U.S.’s outlook has become.
To conclude, barring a “black swan” event or dramatic interest rate increase – in which case, the “world as we have known it” will immediately end – we expect America’s debt to GDP ratio to follow a similar path to Japan’s in the coming years. Which by the way, translates to a national debt of $40+ trillion by the year 2030 or so (excluding “unfunded liabilities”), give or take a few trillion. And thus, we ask how can you not consider protecting a portion of your hard-earned savings with real money; which no matter how much the dollar – and yen – are debased and how much debt said nations rack up will maintain its value through time immemorial?
Yes, we are Japan (and we are suckers as well) !!!
The book “The Fall Of The Roman Empire” is soon to be followed by a new book, “The Fall Of The American Empire”.
Many of the chapters are already written. We are just now writing the final chapter(s).
Our life style is going to change soon, and not for the better.
I’ll never see the good times again that I saw in the 50’s and 60’s.
Please put on the song “it’s crying time in the chapple” as the screwing will commence very shortly!
Dear Mr Hoffman
Your writing style is fantastic and in layman terms for most to be able to understand it is an absolute read with my morning coffee there is one other writer that comes close to your style and is also an absolute read and his name is
JC Collins he has a piece out about a day ago that is an absolute read for you that will reshape thinking in 10 mins after you read this link http://philosophyofmetrics.com/2014/05/28/a-global-currency-reset/ no one can articulate his words into your mind about DEBT like this one article if you don’t read this article you will be ignorant of whats going on just like I would be more ignorant if I didn’t read your articles please read and allow me to pick your brain on his view before I make my decision on gold purchases
Thanks, and I’d be happy to answer any specific questions you have. I don’t know JC Collins, but I’m happy to comment on his work.
I appreciate your excellent analysis! Any news on the latest data for the COMEX Gold on-hand inventory values? Is it still trending down or is this data a smoke screen just like everything else?
Again, thanks for your detailed analysis!
Still sitting at 808,000 ounces. Frankly, it’s barely even worth looking at – as it is so hopelessly rigged, with no predictive value.
It’s all about actual physical supply, which is being drained worldwide but which the sellers wouldn’t dare speak of the actual amounts!