A Glimpse of Our Long-Term Future

William Pesek is pointing out problems again. Yep, another week has passed.

Japan faces debt tsunami

David Einhorn was right about Lehman Brothers being a house of cards. What about Japan?

The New York-based hedge-fund manager who bet against Lehman Brothers says, “It is hard to see how Japan could avoid a government default or hyperinflationary currency death spiral” once borrowing costs increase. Lehman was one thing; Japan crashing is too frightening to contemplate.

Einhorn’s firm, Greenlight Capital, has bought options that anticipate much higher interest rates. He is betting on a phenomenon many tried to time for a decade: a meltdown in a bond market with irrationally low yields.

We're very much following in Japan's footsteps. Based on how much we're borrowing to fund these never ending recoveries (two stock market crashes and one housing market crash just nine years into the new century), I'd say that in 10 years we should be where Japan is now.

We seem to be the lemmings of the financial world. Will we continue to walk in Japan's footsteps once they walk off the cliff? Will the global economy allow us to keep on that path if Japan's "too frightening to contemplate" becomes way too real to ignore?

Japanese asset price bubble

With so much money readily available for investment, speculation was inevitable, particularly in the Tokyo Stock Exchange and the real estate market. The Nikkei stock index hit its all-time high on December 29, 1989 when it reached an intra-day high of 38,957.44 before closing at 38,915.87. Additionally, banks granted increasingly risky loans.

My bearishness is not measured in days, weeks, or months, or even years. It is measured in decades. Japan has been struggling for two decades so far. We're just one decade behind them.