Sunday, August 2, 2009
US Turning Japanese?
Yes I really think so! Not letting bad banks and companies failure is what Japan did in 1990. Twenty years of stagnation and asset deflation is what Japan got as the result. The US should sign up for that, right?
So deflation is the conclusion unless the US gets the Chinese or the Japanese to buy US debt denominated in Yuan or Yen. If you read the US government is selling debt denominated in foriegn currency and still printing dollars without balancing the budget then the hyperinflation scenario could play itself out. By doing this the US is really putting a gun in its mouuth and the Chinese and Japanese would be daring the US to continue fiscal irresponsibility of money printing. Currently we can just print money and pay the foriegn debts off because the debt is denominated in US dollars and the foriegn debt is a fixed amount. If we try this same scenario with debt denominated in Yuan or Yen then the more money we print makes the US dollar worth less and the debt becomes more and more expensive to pay off which pushes the US into a hyperinflationary spiral. You can't get out of this hyperinflationary spiral and the US and foriegners know this. The only reason the US has been able to get away with this excessive money printing is because we are the world's reserve currency.
Bottom line is the future won't be as prosperous as the last thirty years. And yes I think in a credit based money system the likely outcome is deflation which means we are turning Japanese.