At Bloomberg, columnist William Pesek published a piece today titled: If Bill Gross Sees U.S. as Shaky, Check Japan.
You already know where it’s going. Japan runs a giant deficit each year, and boasts a dizzying debt to GDP that maakes America look good.
Ergo, says Pesek, the country is doomed
But he makes an important observation: Even though it’s obvious to him that Japan is doomed, the markets just don’t care. Bonds are high, stocks have rallied, and CDS remain at razor thin spreads. He slams the complacency of traders, and the message they’re sending to the government, which in his view is: Keep on spending!
But here’s the thing. Maybe everyone’s assumptions are wrong about Japan. Maybe the country, which has massive domestic assets, isn’t in financial trouble at all. When the Bank of Japan can be printing yen for years, and the yen only goes higher, maybe that should tell you that the country still has a ton of leeway from a monetary and fiscal standpoint.
Sorry, but complacency is nonsense. Everyone and their mother knows about Japan’s fiscal situation (same too with the “complacent” us bond market, for that matter) and people have been predicting Japan’s doom for years.
If you think the market is that insane, and doesn’t see the gigantic demon that you see, maybe at least be open to the idea that you’ve got the entire premise wrong.
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