Consumer Metrics Institute: The Contraction Continues to Deepen

   Consumer Metrics Institute: The Contraction Continues to Deepen
April 6, 2011
I've updated my Consumer Metrics Institute (CMI) charts through the latest data.
Background
For those unfamiliar with these data series, here is a link to the Institute's website. Their page of frequently asked questions is an excellent introduction to the service. See also the Institute's March 22 commentary, The BEA's Third Estimate of Fourth Quarter 2010 GDP.
The charts below focus on the 'Trailing Quarter' Growth Index, which is computed as a 91-day moving average for the year-over-year growth/contraction of the Weighted Composite Index, an index that tracks near real-time consumer behavior in a wide range of consumption categories. The Growth Index is a calculated metric that smooths the volatility and gives a better sense of expansions and contractions in consumption.
The 91-day period is useful for comparison with key quarterly metrics such as GDP. Since the consumer accounts for over two-thirds of the US economy, one would expect that a well-crafted index of consumer behavior would serve as a leading indicator. As the chart suggests, during the five-year history of the index, it initially lived up to that expectation. Actually, the chart understates the degree to which the Growth Index leads GDP. Why? Because the advance estimates for GDP are released a month after the end of the quarter in question, so the Growth Index lead time has been substantial. However, over the past several months the correlation has disappeared. One speculation is that the Federal Reserve intervention with the rumor and subsequent reality of QE2 has stimulated the economy for the time being, but not the consumer.
Leading Indicator of the Market?
Has the Growth Index also served as a leading indicator of the stock market? It seemed to be during its first years of existence. The next chart is an overlay of the index and the S&P 500. The Growth Index clearly peaked before the market in 2007 and bottomed in late August of 2008, over six months before the market low in March 2009.
The most recent peak in the Growth Index was around the first of September, 2009. Since its peak, the Growth Index declined dramatically, entering contraction territory in mid-January of last year. The market showed signs of correcting in early 2010, which would approximate the lag for the earlier reversals. But that wasn't to be the case.
The CMI Growth Index contraction appeared to have bottomed in early October 2010 and started reversing, but 2011 has seen a renewed contraction. In contrast, the market continued its rally to late April 2010, corrected during the summer months, and then returned to the neck-snapping velocity of the spring 2009 rate of recovery.
Theoretically the notion that discretionary consumption leads the market seems reasonable. But the disconnect since early 2010 calls undercuts this assumption. On the other hand, we are living through some unusual economic times. It remains to be seen if the disconnect between the CMI Growth Index and the market is to some extent a result of the Federal Reserve's quantitative easing (illustrated here).
The next chart compares the contraction that began in 2008 with the one that began in January of this year. I've added annotations for the elapsed time and the relationship of the contractions to major market milestones.
Does the CMI Growth Index Provide A Comprehensive Snapshot of the U.S. Consumer?
In January Rick Davis, the founder of the Institute issued an important report on interpreting the index data: Reflecting Back on 2010 [Download PDF]. Davis essentially concludes that the index data is skewed toward a demographic of consumers who were more vulnerable to the economic downturn than the population as a whole. By the third quarter we began to understand that the demographics of the consumers most likely to buy on-line were the same as those households most severely impacted by the recession. Unwittingly, some of the previously identified sampling biases in our data collection methodologies turned out to be much more significant than we might have suspected. Simply put, young and highly educated members of generations "X" and "Y" were particularly vulnerable to the hallmarks of this recession: entry level job losses and vanishing home equity.
In sum, we can't take the CMI Growth Index as an indicator of the consumer economy as a whole, but it clearly offers important insight into the health of the consumer. In fact, it is a demographic segment on which the future of the economy will become increasingly dependent. It seems difficult to imagine a sustained business cycle and long-term economic recovery while the CMI demographic sweet-spot sputters in a year-over-year contraction.

View the original article here

This post was made using the Auto Blogging Software from WebMagnates.org This line will not appear when posts are made after activating the software to full version.

The fight continues – but now it is Conservative versus Conservative

Yet another twist has come about in the long-running Norfolk incinerator saga, reports TPA supporter John Martin.

The outrageous show trial conducted by the Leader of Norfolk County Council (NCC) Cllr Derrick Murphy – fondly now referred to as “Dear Leader” – at the NCC Cabinet meeting on 7th March remains very fresh in the minds of those who were present. But it was clear that something had to happen, and happen it soon did. Enter stage left, Cllr George Nobbs the impassioned but erudite head of the NCC Labour group (of three) with a formal request to the NCC Cabinet Scrutiny Committee to call in the NCC Cabinet decision and remit it to a full meeting of NCC to retake. In a neat parallel with a judicial review claim, Cllr Nobbs alleged procedural flaws in the process. He highlighted, in particular, the NCC Cabinet’s failure to give the defendants on trial the opportunity to rebut the charges laid against them.

It was perhaps not surprising that he was shortly followed by an alliance comprising members of the NCC Lib Dem and Green groups with their own call in request. Their focus was on health and economic issues, coupled with a timely nod in the direction of localism, given the fact that over 65,000 residents had voted against the incinerator proposal in a local poll. However, the real surprise came in the form of a third call in request made by a breakaway trio of members of the NCC Conservative group, proof if nothing more that Dear Leader’s grasp on that group is weakening. Their ground was a constitutional one, namely that the decision was effectively a policy decision and so outside the jurisdiction of the NCC Cabinet.

Allow me to try to justify the title of this piece. The show trial proceedings had opened with Cllr Nick Daubeny, the Leader of the Conservative controlled King’s Lynn and West Norfolk Borough Council (“KLWNBC”), addressing the NCC Cabinet on the result of the local poll that, no doubt much to the annoyance of the NCC Cabinet, he and his colleagues at KLWNBC had commissioned. He urged the NCC Cabinet not to go ahead with the incinerator project. This alone, never mind the later split in the ranks of the NCC Conservative group, was enough to herald the start of internecine warfare. But within days KLWNBC held a special meeting attended by hundreds of members of the public to decide what action to take in response to the NCC Cabinet decision. On the basis of recorded votes, KLWNBC passed four dramatic motions unanimously, all in condemnation of that decision. Those voting included the nine “twin-hatted” Conservative members of KLWNBC who also sit on NCC (a situation that some of them must now regret, despite the double allowances). To make matters even worse, one of their number was Cllr Janet Murphy, the wife of Dear Leader. Without being dreadfully cruel to the nine, it is fair to say that the forthcoming district council elections on 5th May could perhaps have triggered the odd damascene conversion.

So there you have it. Conservative lined up against Conservative, and in the background two Conservative MPs working hard also to ensure that the incinerator project does not go ahead.

The next development, however, introduced an element of anti-climax. The NCC Cabinet Scrutiny Committee duly met to consider the three call in requests. It soon became apparent that the members of the public who were to give evidence had only been provided with access late in the day to vital documents, and doubts about the legality of the meeting therefore arose. Fortunately, a motion to adjourn was narrowly pushed through and we now await a replay on 19th April. Until then, the NCC Cabinet decision remains suspended.

Now this is all very knockabout and lots of fun to watch, particularly if you hold to the old-fashioned view that party politics should really play no part in local government. But, dear readers, let us not lose sight of what this game is all about. At the heart of it is the decision, so far taken by a group of nine individuals, to award a PFI contract that will involve the expenditure of £670 million of public funds over twenty-five years to an Anglo/US consortium for the construction of a waste incinerator in respect of which there is, as yet, no evidence that will categorically guarantee an absence of any resultant detrimental impact on health and the environment. Furthermore, if that contract is entered into and planning permission is not then granted, NCC will face a compensation claim from the consortium capped at a generous £20.5 million.  This is, as they say, pretty serious stuff.

View the original article here

The fight continues – but now it is Conservative versus Conservative

Yet another twist has come about in the long-running Norfolk incinerator saga, reports TPA supporter John Martin.

The outrageous show trial conducted by the Leader of Norfolk County Council (NCC) Cllr Derrick Murphy – fondly now referred to as “Dear Leader” – at the NCC Cabinet meeting on 7th March remains very fresh in the minds of those who were present. But it was clear that something had to happen, and happen it soon did. Enter stage left, Cllr George Nobbs the impassioned but erudite head of the NCC Labour group (of three) with a formal request to the NCC Cabinet Scrutiny Committee to call in the NCC Cabinet decision and remit it to a full meeting of NCC to retake. In a neat parallel with a judicial review claim, Cllr Nobbs alleged procedural flaws in the process. He highlighted, in particular, the NCC Cabinet’s failure to give the defendants on trial the opportunity to rebut the charges laid against them.

It was perhaps not surprising that he was shortly followed by an alliance comprising members of the NCC Lib Dem and Green groups with their own call in request. Their focus was on health and economic issues, coupled with a timely nod in the direction of localism, given the fact that over 65,000 residents had voted against the incinerator proposal in a local poll. However, the real surprise came in the form of a third call in request made by a breakaway trio of members of the NCC Conservative group, proof if nothing more that Dear Leader’s grasp on that group is weakening. Their ground was a constitutional one, namely that the decision was effectively a policy decision and so outside the jurisdiction of the NCC Cabinet.

Allow me to try to justify the title of this piece. The show trial proceedings had opened with Cllr Nick Daubeny, the Leader of the Conservative controlled King’s Lynn and West Norfolk Borough Council (“KLWNBC”), addressing the NCC Cabinet on the result of the local poll that, no doubt much to the annoyance of the NCC Cabinet, he and his colleagues at KLWNBC had commissioned. He urged the NCC Cabinet not to go ahead with the incinerator project. This alone, never mind the later split in the ranks of the NCC Conservative group, was enough to herald the start of internecine warfare. But within days KLWNBC held a special meeting attended by hundreds of members of the public to decide what action to take in response to the NCC Cabinet decision. On the basis of recorded votes, KLWNBC passed four dramatic motions unanimously, all in condemnation of that decision. Those voting included the nine “twin-hatted” Conservative members of KLWNBC who also sit on NCC (a situation that some of them must now regret, despite the double allowances). To make matters even worse, one of their number was Cllr Janet Murphy, the wife of Dear Leader. Without being dreadfully cruel to the nine, it is fair to say that the forthcoming district council elections on 5th May could perhaps have triggered the odd damascene conversion.

So there you have it. Conservative lined up against Conservative, and in the background two Conservative MPs working hard also to ensure that the incinerator project does not go ahead.

The next development, however, introduced an element of anti-climax. The NCC Cabinet Scrutiny Committee duly met to consider the three call in requests. It soon became apparent that the members of the public who were to give evidence had only been provided with access late in the day to vital documents, and doubts about the legality of the meeting therefore arose. Fortunately, a motion to adjourn was narrowly pushed through and we now await a replay on 19th April. Until then, the NCC Cabinet decision remains suspended.

Now this is all very knockabout and lots of fun to watch, particularly if you hold to the old-fashioned view that party politics should really play no part in local government. But, dear readers, let us not lose sight of what this game is all about. At the heart of it is the decision, so far taken by a group of nine individuals, to award a PFI contract that will involve the expenditure of £670 million of public funds over twenty-five years to an Anglo/US consortium for the construction of a waste incinerator in respect of which there is, as yet, no evidence that will categorically guarantee an absence of any resultant detrimental impact on health and the environment. Furthermore, if that contract is entered into and planning permission is not then granted, NCC will face a compensation claim from the consortium capped at a generous £20.5 million.  This is, as they say, pretty serious stuff.

View the original article here

Broke in America: The Housing Meltdown Continues

03/30/11 Los Angeles, California – She likes the free, fresh wind in her hair
Life without care
She’s broke, and it’s “oke”
Hates California, it’s cold and it’s damp
That’s why the lady is a tramp

Well, it’s not cold and it’s not damp. Instead, LA is warm and sunny, with springtime flowers popping out all over.

And yesterday, the Dow rose 81 points, while the price of gold slipped a little.

So what else is new?

We never thought we liked LA. But we may change our mind. Daughter Maria took us around yesterday. We wandered around Venice Beach and then through Hollywood. The town is much nicer than we remembered it. Many of the houses, shops and apartment buildings are getting a makeover. They remind us of the Soho area of Buenos Aires – young, hip, and lively.

“This isn’t like the rest of America,” Maria explained. “Just drive an hour to the East and you’ll see what we mean. That’s the real America. Here, the town is full of immigrants…pretty girls who want to hit it big in Hollywood…Russians, French, English…all sorts of girls. And there are a lot of men…you know, men who take a little too much care of themselves. You see them at parties. They also have a project. They always have contacts. They always have a cell phone and spend a lot of time talking. But nothing ever happens.

“But I love LA. I don’t know if I could live anywhere else.”

There are a lot of girls with the fresh wind in their hair here…

And a lot of people who are broke. Whether it is “oke” or not…we don’t know.

But here’s the latest on America’s housing meltdown:

AP – Damage from the housing bust is spreading to areas once thought to be immune.

In at least 14 major US metro areas, prices have fallen to 2003 levels – when the housing bubble was just starting to inflate. Prices will likely drop further this year, making many people reluctant to buy or sell. That would push down sales and prices more.

The depressed housing industry is slowing an economy that has shown strength elsewhere. And it’s starting to hurt those who bought years before the housing boom began. In some cities, people who have paid their mortgages for a decade have little or no home equity.

Prices have tumbled in familiar troubled spots, such as Las Vegas, Cleveland and Detroit. But they’re also at or near 10-year lows in Denver, Atlanta, Chicago and Minneapolis – cities that weren’t as swept up in the housing boom and bust.

“It’s been tough on the lower class but it’s filtering up,” said Paul Dales, senior US economist with Capital Economics. “It may be only a matter of time before it hits the wealthy.”

Just about the only major market weathering the second wave of the housing downturn is Washington. Home prices there have risen 11 percent in the past two years.

A Daily Reckoning note: the zombies are doing just fine, thank you. It’s the rest of the nation that suffers. Money flows from the people who earn it to the protected financial sector…and to the feds themselves. Is it any wonder that profits in finance are back to their 2007 level? Or that, overall, debt is now even higher? Or that people in the zombie capital are actually richer today (thanks to automatic wage hikes in the federal government, plus property value increases)?

But people in LA? In Chicago? In Dubuque or Baton Rouge?

They’re broke.

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

View articles by Bill Bonner

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here

Volatility Continues to Dominate the Markets

03/16/11 St. Louis, Missouri – The Japanese crisis continues to dominate the news stories, as 4 of the 6 reactors at the Fukushima power plant remain unstable. Radiation level increases have been reported as far south as Tokyo, but Japanese officials say the levels outside the nuclear facility are not dangerous. The unstable conditions at the Japanese nuclear plant, combined with more violence in the Middle East increased volatility in the markets. Currencies, metals, and most commodities had an incredibly volatile day with many investors shifting back into the “safe haven” of US treasuries.

The price movement of gold and silver caught me by surprise, as we have long viewed the precious metals as an “uncertainty hedge.” As I hit the send button yesterday morning, gold was still holding above $1400, but by the time I had walked over to fill my coffee cup it had moved down $20! Gold has rallied back up to trade right above $1,400 again this morning, but shouldn’t it be rallying with so much uncertainty in the markets? I searched for answers yesterday and settled on one scenario that seemed to make sense. Investors were selling gold and silver because they were some of the assets that had the most gains. The drop in equity markets and commodities in general have many investors facing margin calls. With a need for quick cash, the gains in precious metals were an obvious place to raise money. This points out one of the advantages of the metals markets: liquidity is usually not a problem, even in the times of crisis.

The volatility seems to have quieted down overnight, as equity markets in Asia seem to have bottomed and the European markets are opening slightly higher. Oil prices have begun to rise again as traders start to focus back on the Middle East. Oil has been more than volatile, as supply concerns over the Middle East unrest have competed with the lower demand caused by the earthquake in Japan. This morning oil is back within spitting distance of $100 as events in Bahrain heat up. Like most investors, I haven’t focused much on the Middle East, as the Japanese quake has dominated the news. But the arrival of Saudi and UAE forces in Bahrain has certainly raised the stakes a bit. The latest news suggests that the government forces have been firing on protesters in the streets, so things are not looking good. Continued violence in the Middle East will push oil prices back up which could be a drag on the global recovery.

The FOMC used the prospect of higher oil prices to justify a continuation of QE2 and their decision to keep rates near zero. As expected, the statement after the FOMC’s one day meeting was upbeat, but they did caution that the higher commodity costs could have a “temporary” impact on growth. “The economic recovery is on firmer footing, and overall conditions in the labor market appear to be improving gradually,” the Federal Open Market Committee said yesterday. The stock jockeys liked what they heard (and why wouldn’t they when the FOMC is saying they will continue to pump money into their markets!).

Other data released in the US yesterday showed that US homebuilder confidence is at the highest level since May of last year. But isn’t this just a sign of the season? Every builder/developer I know gets excited in the springtime, as summer is always their best season. Another report showed that manufacturing in the New York area accelerated in March at the fastest rate in nine months. The TIC flows, which reflect global demand for US stocks, bonds, and other financial assets fell in January from a month earlier. But the markets largely shrugged this number off as purchases of US Treasuries have definitely increased again after the Japanese catastrophe. While the markets may be ignoring this data, we still think investors should keep a keen eye on these TIC flows as they are a good indicator of global confidence in the US dollar. The deficits that our government continues to run can only be financed with a steady stream of foreign investments. If and when these foreign investors’ appetites for US Treasuries start to sour, interest rates in the US will begin to move up very quickly. And higher rates are exactly what the Fed is fighting against, so we definitely need to keep a keen eye on these TIC flows.

We will get more data on the housing market this morning, with the release of housing starts, building permits, and mortgage applications. With yesterday’s positive data you would think these numbers would be positive. But builder confidence and actual home starts are different animals. Builders may be more confident that things will get better, but the starts and permits reflect what is actually happening on the ground. We get a look at inflation with the Producer Price Index for February. The FOMC says they are keeping a close eye on inflation, so it will be interesting to see just were the PPI numbers come in. With commodity prices on the increase, I would expect to see a surge in the PPI numbers, which may cause some to question just how long the FOMC can keep up QE2.

European inflation accelerated to the fastest in more than two years in February, rising 2.4% compared to a 2.3% rate the month before. This is the fastest since October 2008, and is the third month in a row that inflation has exceeded the ECB’s 2% limit. While the US FOMC apparently isn’t concerned with rising prices, the ECB has a mandate to keep prices under control, so the higher inflation numbers are definitely increasing pressure on the ECB. The Japanese disaster may release some of this pressure for a rate increase, but all indications still point toward an April increase.

The Swiss franc (CHF) surged to a record versus the US dollar yesterday as investors searched for safe havens. Traditionally, the Japanese yen (JPY), US dollar, and Swiss francs have been seen as “safe haven” currencies. But since the catastrophe is located in Japan, investors shifted more of their funds to the Swiss franc and US dollar. All indications are that the Swiss will continue to benefit from the events in both the Middle East and Japan. An article appearing on my Bloomberg this morning had the following quote: “Given the domestic risk in Japan, which is leaving the yen’s safe haven status more questionable, the Swiss franc is the clear alternative and is benefiting,” said Adam Cole, head of global currency strategy at RBC in London. “Markets will stay nervous, at least for the next couple of days. That probably will continue to support the franc.”

With investors scrambling to find an alternative “safe haven” to Japan, Norway has caught many investors eye. We have long said Norway should be at the top of the list for those looking for a fundamentally sound economy, and Norway’s krone (NOK) is an excellent alternative to the Japanese yen. The Norges Bank will announce a rate decision today, but are widely expected to leave rates unchanged. Even with no change in rates, Norway still enjoys a positive rate differential to most of Europe, and the Norges Bank continues to take a hawkish tone. As inflation climbs, the Norges bank will definitely be in the front of those central banks raising rates, which should be very positive for the krone.

The biggest loser of the currency markets over the past 24 hours has been the South African rand (ZAR) which is off nearly 2.5% versus the US dollar. The rand was a popular investment choice for Japanese investors, and the repatriation of funds has caused many of these investors to sell their rand positions. This sell off was magnified as investors started to move away from risk trades, and further selling is expected today. The Australian dollar (AUD) and Brazilian real (BRL) were also sold as investors exited “carry trades.” Again, the selloff was initially due to Japanese investors repatriating funds, but continued as other investors exited these “riskier” currencies.

The Aussie dollar was probably due for a correction, so this sell off isn’t overly concerning. Minutes of the Reserve Bank of Australia’s March 1 meeting were released yesterday, and showed that policymakers were happy with a “mildly restrictive stance of policy.” Slower household borrowing offset a mining investment boom, causing the RBA to keep rates unchanged at their March 1 meeting. The RBA was concerned about the run-up in the value of the Aussie dollar, and the possibility of further gains caused by an interest rate increase. But the recent drop in the Aussie dollar may give the RBA Governor a bit more breathing room and enable him to increase rates again at the next meeting.

Chris Gaffney
for The Daily Reckoning

Chris Gaffney is vice president of EverBank World Markets and the alternate author of the popular Daily Pfenning newsletter. Mr. Gaffney has been involved in the global marketplace since 1987, and is director of sales for EverBank World Markets. The Daily Pfennig is delivered via e-mail to tens of thousands of market watchers globally, providing commentary that allows them to stay on top of economic, currency, and market happenings. He is a Chartered Financial Analyst and holds degrees in accounting and finance from Washington University in St. Louis.

View articles by Chris Gaffney

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here

Earthquake catastrophe continues in Japan

Our Prayers are with you, People of Japan and all affected areas.

Volcanoes erupting: 2 in Russia , 1 in Indonesia, and now a huge eruption in Japan.

Four trains and a ship were swept out to sea with passengers. It is too early to know but it is expected deaths will be in thousands.

Japan - Many earthquakes continue in Japan.
http://earthquake.usgs.gov/earthquakes/recenteqsww/Quakes/quakes_all.php

Earth Axis shifted 10 cm (4 inches) from Japan earthquake

Honshu earthquake tore gash in Earth 150 miles long, 50 miles wide

Japan declares nuclear emergency

BBC News Japan earthquake

View the original article here

Buying Japanese Stocks as the Economic Slump Continues

03/08/11 Baltimore, Maryland – Nothing much to report from the markets yesterday. The Dow was down 79 points. Gold rose $5.

So, let’s look across the wide Pacific…to the land that invented suicide bombing. Did we update you on our “Trade of the Decade”? We did? We thought so…

And here’s our old friend Marc Faber…with the same idea (or at least half of it.) Buy Japanese stocks, he says…

After a two-decade bear market, now is the time to buy and hold Japanese stocks, Marc Faber, publisher of the Gloom, Boom & Doom report, said.

Faber, who is credited with predicting the 1987 stock market crash and said two years ago that shares would decline just as they began the biggest rally in more than 50 years, said the Japanese government will be forced to print money to monetize the country’s public debt, the developed world’s biggest. That will cause the yen to weaken, helping boost earnings for the nation’s exporters and buoying stock prices.

Faber joins other bullish investors on Japan, such as Goldman Sachs Group Inc. and David Herro of Oakmark International Fund, in countering skepticism about Japan earned through four recessions and dismal stock returns after the 1990 crash of the bubble economy. The Nikkei 225 (NKY) Stock Average has fallen about 73 percent since it peaked in December 1989.

“If I had to make a bet for the next ten years in terms of equity markets, I would seriously consider a very strong weighting here in Japan,” Faber said yesterday at the CLSA Asia-Pacific Markets’ annual conference in Tokyo. “Once the debt market starts to go down, the yen will begin to weaken and that will lift equity prices. I would buy equities at the present time.”

But wait. What’s this?

Here’s Dennis Gartman with a nuance:

Japan is demographically and fiscally doomed. Her population is collapsing in size and growing elderly at the same time, while her fiscal circumstances are far and away the worst of the industrialized world. Japan has survived for decades in a strange world of fiscal irresponsibility by being able to sell her debt to her own people rather than to the rest of the world as the US can do and must.

Of course, this just supports our position. The Japanese soon will have a bitter choice. Either they abandon their whole silly economic model – with its eternal stimulus budgets and its perpetual zero interest rates. Or they print money. If they give up, it will bring on the final and devastating bottom of their 21-year slump. If they print money, on the other hand…they might hold off the disaster long enough to make it worse.

It is a bit like their situation after the Battle of Midway. Had they examined their situation carefully, they would have seen that the gods of war had gone over to the over side. They faced a superior adversary. And they were out of fuel. They needed control of the seas in order to re-supply; and they had just lost it.

What to do? They had a choice. They could have pulled back to the home island, begged forgiveness and negotiated a settlement. Instead, they soldiered on…in a long, hard, nasty retreat…and eventually turned to kamikaze pilots to try to save the day.

What choice will they make this time? Probably, they’ll print money. Inflation rates will rise. Japanese government bonds will collapse. And investors will try to protect themselves from inflation by buying stocks.

Bill Bonner
for The Daily Reckoning

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning . 

View articles by Bill Bonner

The articles and commentary featured on the Daily Reckoning are presented by Agora Financial.

Sign Up for The Daily Reckoning e-letter and receive a copy of our newest report How to Survive the Fall of Social Security… at NO CHARGE.

We Will Not Share Your Email.
We Value Your Privacy.

View the original article here