Weak link number three is Japan. I have been talking about Japan for years. The line I coined six years ago is one that everybody tosses around now: “Japan is a bug in search of a windshield.” Japan is doing exactly what I said it would do in my book End Game five years ago and in Code Red over two years ago. It will get honorable mention in the next book.
Japan is monetizing its debt and putting it into the central bank. They are going to continue doing this at an astounding rate. I shorted the yen when it was at 100. I should have shorted it when it was at 90, because I was already writing about it then, but at the time I didn’t have the money or the testosterone. I was a lot happier when it was at 125 than now when it is back down to 102. One of the things I try to avoid when I place money with money managers is a “true believer.” A true believer’s certainties can take you over the cliff. But I must confess to being a true believer about the ultimate weakness of the yen. I still think 200 is a real possibility. For what it’s worth, I still have my money exactly where my mouth is. Only now, the cash value is back to where I started almost 2½ years ago. Oh well… We true believers are a hardy bunch. By the way, have I introduced you to some of my gold bug friends? And then there’s the survivalists. Just saying…
The Japanese have placed 30% of their total government debt on the balance sheet of their central bank. It is going to 70–80% – count on it, says the true believer. That is a lot of yen to put into the system, and that is what I think drives the ultimate valuation of the yen.
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We may just declare some kind of debt jubilee, which I said above was crazy and unthinkable. But then again, when our backs are to the wall and we are offered a last cigarette and a blindfold, we may start thinking about alternatives.
Could we, the major developed countries of the world, all monetize our debts together – not separately, together – and recognize that we all allowed debt to go too far? We have to rationalize the whole system. We need to do it in a coordinated fashion so that no one major country gets an advantage in terms of currency valuation. It’s a controlled currency war. The smaller, emerging markets will be on their own. Sadly, that is my attempt at an optimistic approach to thinking the unthinkable.
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