Japan Crisis Pressures Deadbeat Debtors

The following commentary comes from an independent investor or market observer as part of TheStreet's guest contributor program, which is separate from the company's news coverage.

VANCOUVER, Canada ( Bullion Bulls Canada) -- The sequence of catastrophes which has afflicted Japan can only fill us with empathy for the Japanese people. However, Western deadbeat debtors cannot afford to concern themselves only with expressing their official condolences to Japan. Rather, they need to be focusing on their own financial survival.

With Japan's era of near-zero interest rates now stretching into decades, Japanese citizens were forced (by their own government) to invest outside the country. Countless trillions of yen flowed into the economies of other nations (and were converted into those local currencies). With Japan facing a massive reconstruction effort , those trillions of yen are now required at home -- to attempt to mend the domestic economy, and the nation of Japan itself.

Over the short term, two trends dominate. One is general downward pressure on global asset prices as Japanese investors liquidate those foreign assets. The second is upward pressure on the yen as assets previously held in foreign currencies are converted back to yen -- causing a short-term spike in demand for this worthless paper.

We now have the peculiar situation where one of the worst of the deadbeat debtors -- Japan itself -- is seeing a spike in the (relative) value of its currency, despite the fact that over the longer term, the direction for the yen must be lower, not higher.

Japan was gripped with enormous structural deficits before these series of tragedies struck. Thanks to the horrific damage to infrastructure, Japan faces massive spending requirements, even as its capacity to generate wealth/income has been severely impaired. It highlights the unforgivable negligence and recklessness of Western "leaders" in creating these structural deficits in all of our economies -- with the consequence being that none of our economies is prepared to withstand any sort of major catastrophe in our own backyards.

The size of Japan's already huge deficits can only soar higher. This effectively cuts Japan off from international debt markets, as Japan's ability to even service these higher debt-loads is seriously in question. Longer term, debt-default now seems a virtual certainty for Japan. Thus, the only way Japan could engage in any foreign borrowing is through much higher interest rates (to compensate lenders for greatly increased risk). However this would drive up the costs of servicing Japan's existing debt by such an extreme amount that arguably any and every dollar which Japan could borrow would simply be consumed in rising interest payments.

Effectively, Japan can do nothing but print money by the trillions (the "Bernanke solution"), while its economy sinks further and further into debt. This is now a scenario which could quickly and easily degenerate into a hyperinflation spiral, as it now becomes very similar to that of Weimar Germany.

With Weimar Germany, it was the combination of huge, existing debts and future spending obligations which together were impossible for that economy to continue to manage which precipitated hyperinflation. It is the combination of gigantic debts and the future expectations that things can only get worse, which destroys confidence in a currency. And as with all scams, the inherent "con-game" (i.e. confidence game) of fiat currencies can only continue as long as the "chumps" (i.e. us) can continue to be duped into believing that all this worthless banker paper has "value."

As with any cheap magician, once the "illusion" has been dispelled, the "magic" (i.e. the con) fools no one. Thus, our current generation of "cheap magicians" (i.e. central bankers) are nearing the end of their era. Some of the chumps (i.e. those of us investing in precious metals) have already seen through the stealing-by-dilution inherent in their reckless, fiat money-printing. Every "un-backed" paper currency ever created by bankers (over a thousand years) has been destroyed by those same bankers through excessive dilution.

As with any Ponzi-scheme, the fiat-currency scam not only requires continuing infusions of "fresh paper" to pump it up and keep it from imploding, it requires exponentially increasing quantities of paper to forestall collapse. With Japan's own printing press permanently running white-hot, much of the paper used to prop-up the Western fiat Ponzi-schemes emanated from Japan.

That source of funding has not only abruptly dried up, but Japan will be subtracting previous injections of fiat-paper which were used to prop-up the global house-of-cards. This need for additional funding will hit Western economies even if Japan's disasters don't cause a general slow-down in global economic activity. If a slowdown does materialize, Western funding problems will be immediately and greatly amplified.

Thus, while the parameters are not as extreme, every Western debtor nation will be facing a "squeeze" on their own debt/fiat currency Ponzi-schemes. All of these debtors face the same choice as Japan: crank up the printing presses to an even more reckless level, or attempt to "borrow" more money - in a world with no surpluses.

The standard line from the U.S. propaganda machine (for years) is that "surplus nations" (like China) are "forced" to plow their money into funding Western debt, to "recycle" those surpluses, and prevent the strength of their domestic economies from driving up the value of their currencies (punishing exports).

China just reported a trade deficit in the statistics for the most recent month. How many U.S. Treasuries or Japanese bonds will China be "forced" to purchase with less than zero dollars?

Like Japan, Western deadbeat debtors can ratchet up the money-printing on their printing presses to a still more reckless extreme or they can try to borrow more money. Like Japan, the massive debts and even more massive structural deficits of these economies mean that few if any of these governments can handle an increase in borrowing -- and still pretend to be solvent. Like Japan, any incremental borrowing can only drive their borrowing costs sharply higher. Like Japan, the most-probable result is that higher interest payments would consume any and every new dollar of borrowing (plus more?).

This means that, like Japan, Western governments really have no "choice" at all: they will simply crank out mountains of worthless banker-paper at even greater rates -- and pray that their economy is not the first one to "go Weimar."

If ordinary citizens were previously oblivious to this slow but perilous descent toward the economic Armageddon of hyperinflation, they will not remain so for much longer. The "Titanic" known as the Japanese economy has now clearly struck an iceberg and will take on water rapidly. It is only a matter of months (perhaps weeks?) before Western citizens realize their own economies are no more "seaworthy" than that of Japan. On that day, the countdown to hyperinflation begins.

In accordance with the old, Chinese cliché, Japan's "crisis" represents an "opportunity" for those of us outside Japan. The very temporary weakness in commodity prices -- and most especially precious metals -- represents an unambiguous "buying opportunity": a chance to rid ourselves of large amounts of banker-paper, and funnel that wealth into "hard assets."

Even hard assets in the form of "paper equities" are vastly preferable to any form of banker-paper, providing those equities genuinely represent "hard assets" rather than simply representing more banker-paper (like shares in any financial institution). Naturally, any sane investor will be dumping every cent they have invested in the bond market.

Bonds represent the "worst of both worlds" in the realm of investing. Not only are they instruments which represent debts that will never be repaid, but they are denominated in utterly worthless banker-paper. The only thing preventing the global bond-market from earning the title of "The Mother of all Ponzi-schemes" is the existence of the banksters' $1.5 quadrillion derivatives market.

While nearly any commodity (except uranium) should be considered an attractive buy at current valuations, for many reasons precious metals remain the ultimate asset class: representing not only two of the rarest (i.e. most "precious") commodities on our planet, but they represent the only "good money" in a world filled with "bad money" (fiat paper).

There are some commentators who believe the serial catastrophes in Japan will become a national "rallying point" which unifies the Japanese people into finally "fixing" their badly damaged economy -- as they repair their badly-damaged nation. I sincerely hope those forecasts are correct.

Outside Japan, one can only hope that these disasters are a sufficient "wake-up call" to rouse Western citizens from their collective, propaganda-induced stupor. The "don't worry, be happy" propaganda that "things are getting better" has all been lies.

In the U.S., Bernanke's famous "green shoots" have withered. After promising an "exit strategy" for more than a year, all that Bernanke actually produced was nearly $1 trillion more in new money-printing. Now, with one of the biggest purchasers of U.S. paper permanently out of that market, we have Federal Reserve clowns resurrecting their "April Fool's joke" from last year: that the Fed has "finished" its "quantitative easing."

No one asks Helicopter Ben who will buy the $trillions in new U.S. debt. Media-parrots have been well-trained not to ask Bernanke any questions for which they know he has no answers.

If it was obvious before these latest catastrophes that precious metals represented the best refuge from the monetary depravity of bankers, and the reckless incompetence of our government "leaders," it is crystal-clear today. Investors should immediately take advantage of the "sale" on precious metals, as (unlike banker-paper) "quantities are limited."

This commentary comes from an independent investor or market observer as part of TheStreet guest contributor program. The views expressed are those of the author and do not necessarily represent the views of TheStreet or its management.

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