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Yeah, that's true. Demographics work in America's favor. Unfortunately, the population doesn't grow fast enough to offset the deleveraging that is occurring.
BTW, Japan is on the brink of disaster, IMHO. I've started shorting the yen using long-term options and I want to short Japanese long-term bonds. If you think America is in trouble, Japan is far worse. It is mind-boggling to me that the yen it approaching all-time highs. That is absolute gift, in my opinion, one of the clearest long-term trades I have ever seen.
Wouldn't Gold be a safer alternative to shorting bonds. What if all western countries & Japan just inflate like crazy or monetize debt? You will just have a pile of paper. It is just a matter of time before a majority of the worlds producers have an epiphany about a whole host of currencies.
Shorting bonds that are yielding almost nothing is one of the safest bets around. I'm trying to buy options on 5 and 10 year JGB interest rates.
In Japan, total tax revenues will pay for social security and interest on the debt, and that's it. There are other sources of revenues, such as dividends and interest from government-owned assets, but most of the shortfall has to be borrowed. The biggest buyers of JGBs have been Japanese pension funds, but they are now in run-off mode as the working population in Japan peaked in 2008, thus they are net sellers of bonds. Plus, they have been ordered to get their returns up because they aren't earning enough to meet obligations. You can't do that owning JGBs yielding 1%<. The savings rate in Japan has fallen from 15% to 2% today. Americans save more than the Japanese. There is a budget gap of ~$400 billion that has to be funded each and every year. To do so, interest rates are going to have to rise to attract foreign capital, unless the Chinese are willing to accept virtually no interest income on their reserves. But if interest rates rise, then the budget gets out of whack because debt is 200% of the economy. It is virtually impossible to cut spending in Japan because of the ossified Japanese political system, and they can't raise taxes because the economy tanks when they do. Japan is truly fracked. And this week, the yen hit a 15-year high. A-fucking-mazing. Unless Japan radically reforms its society, there is no way out. And usually, countries don't reform until there is a crisis. I am betting on a crisis, or at a minimum, a rise in Japanese interest rates as they have to tap international markets. It is a matter of when, not if.
Their currency is strong & the Chinese are willing to accept virtually no interest income on their reserves because they are doing it for US also. If interest rates overwhelm Japan, they may choose to monetize debt. I am betting we will be in the same shape in 12 years because foreclosures & this depression will worsen until November 2012 & we have a lot of off balance sheet debt. We will monetize debt just like Japan will. Currencies are going to take a massive hit.
The countries in red will have a currency crisis within 25 years.
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