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The most important country to follow to understand where the rest of the world's fiscal, social and market situation may be headed is Japan. It's been more than a year since that country launched its latest and greatest government policies targeted at reinvigorating the economy: Abenomics.
The essential policy tools of Abenomics are massive monetary and fiscal stimulus aimed at forcing the yen lower, which should cause exports to rise and domestic production to increase, leading to increased domestic job production and consumption: the virtuous cycle. In the process, Japan also increased sovereign debt, which must be serviced by the government. The servicing of that debt is supposed to come from an increase in tax receipts to be made available by the increased domestic production and consumption.
But it isn't working.
The failure of Abenomics to stimulate economic activity and raise tax receipts enough to pay for the stimulus is now causing the government to double back on these programs with a counter-cyclical consumer tax increase of about 3%, which will be implemented in April. In other words, Abenomics is making the real economic and fiscal situations in Japan worse, not better. They are digging a bigger sovereign debt hole and accelerating the trajectory toward insolvency.
Nobody will discuss this insolvency trajectory, however. Economists and government officials prefer to use the more opaque and nebulous term "crisis" as they debate how long Japan has before that crisis occurs without saying what that crisis entails. That crisis is sovereign default and insolvency, which is now inevitable. I first addressed this in 2010 in a column that is no longer available in the archives (if you would like a copy, email me email@example.com). I also addressed it a year ago in "Why Japan Is Doomed to Insolvency."