Is Japan a hyperinflationary Weimar in the making? Evans-Pritchard thinks so. He sees the Ministry of Finance resorting desperately to printing-press money sometime next year when public debt pushes above 225 percent of GDP.  At that point the country will no longer be able to borrow at 1% from a captive bond market, notes Evans-Pritchard, and Japan will “flip from deflation to incipient hyperinflation.” The world will become obsessed with Japanese bond auctions, predicts the U.K. Telegraph’s international business editor, and “Finance Minister Hirohisa Fujii will become as familiar as a rock star.”

WSJ’s Schizophrenia

We strongly recommend that you imbibe all of Evans-Pritchard’s analysis at the Telegraph’s excellent web site, since it is densely packed with forecasts for the coming year.  Readers comments follow, and a few of them inflict heavy damage on the notion that there’s a global recovery in progress. We can understand why some would cling to this belief. “World Factories Rebound” was the lead headline in Tuesday’s Wall Street Journal. But this is just one more example of the schizophrenia that has characterized the Journal’s economic coverage in recent months.  The newspaper tends to do its cheerleading on the front page, but on a typical day there will usually be a dozen articles elsewhere in the paper implying there is little to cheer about. On that score, here’s one of the more interesting responses – signed “Eco-Friend” -- elicited by Evans-Pritchard’s analysis:

“Never mind that the Stimulus bubble is just that, another bubble, or that unemployment is ~15%, foreclosures may or may not have peaked (even if so the another 50% are pending), NOBODY is loaning money, Obama is capping executive pay and bank profits, GM is BROKE AGAIN, and all the optimism in the world will not prevent GreenTech from being the bust that the laws of thermodynamics insist it will be. Forget all this. Ignore the lessons, buy high, sell higher, and buy higher yet! Such is the American way. Ha!

The ‘Good’ Deflation

“Ambrose is of course right. The road will still get rougher. Everyone unilaterally needs to save money, stockpile it, and create value by driving up demand for MONEY, not cheap chinese crap (even the Chinese). This is not philosophy or academic theory, it is fact. Simple posterity will save every currency in the world and the countries with lower tax rates will recover faster because they will be able to keep wealth ahead of liability. Supply and demand inflation is the exact opposite of inflation caused by the government printing money to cover debt. It is deflationary by nature, and thus capable of restoring balance. If the US can avoid any further stimulus temptation or carbon rip-off taxes the dollar will win again easily.

“And that's good for everyone. 2010 need to be the year Americans tighten their belts, suffer a little hardship and get things back on track. With every one flush with cash, the market will quickly rebuild the world bigger and better. But you can't shortcut the road that must be traveled. This is reality. There will be no "big move" that saves us. The big move will be the collective result of all of us doing simple things right at the same time.

“Or we can piss the whole world into a world war because we just had to have that juicer and flat screen TV. Whatever...”

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-- Posted Wednesday, 6 January 2010 | Digg This Article