Gold News

Martin Wolf Catches On

If the US and Europe are following Japan, then we really are all freakin' doomed...

The DOW SINKING. Gold sinking. Oil sinking. Copper sinking. Yields sinking.

We struggled with this, Dear Reader. We meditated. We prayed. We drank heavily, writes Bill Bonner in his Daily Reckoning.

And finally...we overcame the rank desire to say: "We told you so!"

As you know, Martin Wolf, of The Financial Times, is the voice of The Economics Establishment. All that is great and good in the field – which isn't very much – is given voice by Wolf. Then, it is acceptable for policymakers, Treasury ministers, and central bankers, not to mention the people you talk to at cocktail parties.

And lo! Here cometh the neo-Keynesian economist. What saith he?

He says the world is drifting towards Japan.

Of course, that was the message 10 years ago from a certain feral economist who will not be mentioned. He maintained that Japan was a leader, not a follower...and that the US would follow in Japan's footsteps...with about a 10-year lag.

He even wrote a book on the subject, with Addison Wiggin: Financial Reckoning Day. Where he got these ideas, we don't recall. What we do recall is that almost everyone laughed at him.

"Japan?" they said. "The US is nothing like Japan. We have a dynamic, robust economy. We have Lehman Bros, Bear Stearns and Countrywide 'low doc' mortgages. We have Alan Greenspan. And George W. Bush. We have 'mission accomplished' in Iraq. We have Silicon Valley, Bernie Madoff and a housing boom. Japan has none of those things. Ha. Ha."

But now, the last laugh is on the other foot!

Japan's market topped out in 1990. The US market topped out – in real terms – in 2000. Thereafter, Japan saw on-again, off-again recession...sinking prices, generally...and slumpy conditions. The US economy staged a limp recovery in the '02-'03 period...then gave investors a bubble head-fake. Now, it's back to the slump...and now, both Europe and America are looking more Japan-like every day.

Martin Wolf explains:

"On May 10, 2012, the yield on the German 10-year bund was 1.44 per cent, on the US 10-year Treasury was 1.85 per cent and on the UK 10-year gilt was 1.9 per cent.

"These are extraordinary numbers. They are particularly striking in the cases of the US and UK, which unlike Germany, run very large fiscal deficits and are experiencing very rapid increases in public sector indebtedness.

"This combination of falling government bond rates with very rapid rises in public sector indebtedness reminds us, of course, of the experience of Japan since 1990.

"At the end of 1990, when its 'bubble economy' went pop, the Japanese government's 10-year bond was yielding 6.7 per cent. As the economy subsequently declined, deflation took hold and fiscal deficits and public debt exploded. But yields on 10-year Japanese government bonds (JGBs) fell to close to 2 per cent in 1997 and then, with sizeable fluctuations, to troughs of 0.8 per cent in 1998, 0.4 per cent in 2003 and, recently, to 0.9 per cent. In short, the worse the Japanese government's present and prospective debt position has become, the lower the interest rates on JGBs has also become.

"Similarly, in July 2007, just before the beginning of the crisis and consequent explosion in fiscal deficits and debt, the US 10-year Treasury yielded 5.1 per cent.

"Now, almost five years later, the bonds of this alleged fiscal basket case yield less than 2 per cent. Again, in the UK, another supposed basket case, with huge fiscal deficits and a slipping austerity programme, yields have fallen from 5.5 per cent in July 2007 to below 2 per cent."

What does it mean?

Well, if the US and Europe are following Japan...and Japan is going nowhere...then three of the world's large major areas are dead in the water.
And if that is the case, you can expect the entire world economy to "go Japan".

That will mean lower commodity prices. A lower price of oil. A lower price of gold. Lower interest rates – yes, look for the yield on US 10-year notes to drop below 1%. Bad unemployment figures. Low...or negative growth...falling real estate prices.

...and probably a stock market crash.

Hold onto your hats!

Ready to Buy Gold...?

New York Times best-selling finance author Bill Bonner founded The Agora, a worldwide community for private researchers and publishers, in 1979. Financial analysts within the group exposed and predicted some of the world's biggest shifts since, starting with the fall of the Soviet Union back in the late 1980s, to the collapse of the Dot Com (2000) and then mortgage finance (2008) bubbles, and the election of President Trump (2016). Sharing his personal thoughts and opinions each day from 1999 in the globally successful Daily Reckoning and then his Diary of a Rogue Economist, Bonner now makes his views and ideas available alongside analysis from a small hand-picked team of specialists through Bonner Private Research.

See full archive of Bill Bonner articles

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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