Implications of a Collapsing Japan

Implications of a Collapsing Japan

by Chris Martenson

Monday, March 5, 2012

Executive Summary

• Why Japan can no longer increase its US Treasury debt levels
• Japan’s ticking insolvency time bomb
• Why its current recession is adding gasoline to the fire
• The most likely progression the Japanese collapse will follow
• The impact a collapsing Japan will have on global markets
• What investors should do now

Part I: Japan Is Now Another Spinning Plate in the Global Economy Circus

If you have not yet read Part I, available free to all readers, please click here to read it first.

Part II: Implications of a Collapsing Japan

Back in March of 2011, when the Fukushima situation was just unfolding, one scenario that had me concerned was this one:

For decades, the world has been running its own nuclear-style reaction, only in the currency and debt markets, where exponentially-accelerating piles of debt and money have spun about faster and faster in a gigantic, complex, coordinated reaction, the core of which is, and always has been, the United States.

At the very center of this ungainly money reactor is the main fuel pile itself, the US Treasury market. With any interruption to smooth flow of money through this pile, it will immediately become unstable.

The threat I see goes like this:

Stage 1:  The world watches, riveted, as Japan suffers a tragic and horrible earthquake and tsunami, but as horrifying as these are, they are localized phenomenon affecting a relatively small percentage of the country. The real trouble lurks within damaged nuclear plants, which are now ruined and will never again produce electricity for Japan, creating instant shortages that will take years to remedy. Worse, a dangerous plume of radioactivity is carried south by winds. Tokyo partially empties and shuts down for all practical purposes.

Stage 2:  The abrupt slowdown of the world’s third largest economy alters the smooth flow of cash around the globe, and even causes reversals of some other long-standing flows. Chaotic eddies emerge in a decades-old pattern of ever-increasing flows of money into and out of the money centers, and various carry-trade and other interest-rate-sensitive strategies blow up.