Wednesday, January 20, 2010

Reality Break

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Sorry for the interruption, unfortunately reality is knocking at the door again. It seems like the magic word among those in the know is Sovereign Risk.

Here a hedge fund guy who predicted our current mess and was evil enough to profit from it lays bets on the next big shoe to drop.

First came central bank induced real estate bubble, primarily caused by efforts to keep the Yen low through very low interest rates. Then when the crisis hit, instead of closing bad banks and bankrupt companies (most with political connections) came a decade's long series of bailouts, more and more monetary easing (the stuff that caused the bubble in the first place) and a cycle of greater and greater government stimulus spending on projects people didn't need and the government couldn't afford.

But now after more than twenty years of hiding and evading the pain with piles of government debt; the real pain may just be starting. Japan faces almost certain default or a period of drastic hyperinflation which will wipe out the last savings of it's citizens.

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