Anyone wishing to opine on Japan and the impact of the earthquake on its fiscal situation really ought to read this post from Cullen Roche at the Pragmatic Capitalist.
The gist: It’s scandalous to use a human tragedy to back up your flawed views about how Japan is bankrupt.
This seems like good advice, however it wasn’t taken by James Pethokoukis who warns “Japan reminds strapped officials they need buffer.”
He writes; “When your credit card is nearly maxed out, dealing with emergencies can be tricky. A massive rebuilding effort may stretch Japan to its financial limits. Politicians in Washington and other overspending capitals should take note of the warning.”
This is scaremongering, and not based in any read of the markets. Since the earthquake, yields on Japanese Government Bonds have gone DOWN, not up. The yen — much to the dismay of the perpetual yen doomsayers — has surged!
If you had to draw a lesson from Japan for the US — if you really had to — you’d say, “Wow, even an existential crisis can’t shake the debt of a country with its own currency and Fed.”
Now this could be wrong. Maybe one day Japan will go bust, but… certainly nothing in the current crisis backs up Pethokoukis’ case.
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