Japan’s dangerous rout

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by David Malone

A couple of days ago the Japanese stock market dropped by 6%. The night before last, our time, it plunged by a further 10%. Today, Europe’s markets are dropping like stones.  London, at the time of writing (10 am), has fallen 3% just this morning, Paris 4%, Frankfurt 5%.

Unlike the fall out from their reactors which may stay in mostly in Japan, the financial fallout is already here. GE stock dropped 2% and will drop again (another 9% down in pre market) as will other companies who are closely tied to the building of nuclear reactors, like Westinghouse.  The great hope which steadied stock markets here and in the US yesterday, was that there would be rich pickings from the misery as huge rebuilding contracts were given out.

Today that is being weighed against the thought that Japan has already squandered and wasted all the vast fortune it had made since the war, on propping up its insolvent banks.  Before is tries to print or borrow a single Yen for rebuilding the devastation wrought by earthquake, tsunami and nuclear meltdown, Japan already staggers under debts which are 200% of GDP.  To that debt the Bank of Japan has just added another $245 billion more.

Who will lend Japan the money and at what price? Japan will no doubt choose to print in the hope that it will create a vast investment and stimulus for domestic rebuilding.  They will hope that such a huge printing programme will have the added benefit of finally lowering the Yen’s value versus the dollar.

But the alternative scenario, now obvioulsy weighing on the minds of both the stock and bond markets, is that perhaps Japan will not be able earn its way out from under the dead weight of its debts.  The arteries of Japan’s once fit financial body, have been rotted and hardened by 20 years of a relentless diet of clogging debt consumption.

This is what happens when you listen to the bankers who insist that they are indespensible, that finance is no longer there to serve industry and the nation but the nation is there to serve and protect finance. And when the financial system so corrupts the political system that the political class turns its back on every other consideration, every loyalty and duty, and does nothing but save insolvent banks.  When that is what happens to a nation then when you reach the moment of need, when a true disaster strikes, there is nothing left with which to fight it. The cupboard has been robbed blind by the rich and the poorer are left with nothing.

Had Japan stood up to its financial and political elite and forced its rotten, inept, corrupt and insolvent banks to suffer the losses of their bad debts 20 years ago, then today Japan would not be enfeebled by the highest debt to GDP in the world. Japan wasted its vitality and now faces disaster on its knees.

We are being bullied to repeat this disaster. What reserves of industry and wealth are we going to have with which to face climate change, food shortages, wars fought over water supplies, an aging population and spiralling energy costs, if we too squander our inheritance and indebt our children and our nation at the command and for the benefit of our insolvent banks and those few rich who benefit from them?