How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

[Rajiv]

Interesting thought process here.

If you boil water without releasing any steam everything looks perfectly calm... until the entire pot explodes.

That's the huge risk with Japan's gargantuan debt load right now.

Frequently billed as a highly stable country, Japan's dark secret is that it should have exploded into a hyper-inflationary death spiral years ago.

Worse yet, it could easily take the U.S. financial system and U.S. dollar down with it. That's because the U.S. depends on Japan to fund its own debt binge.

We're not alone here. These concerns have been heavily informed by the research of Societe Generale. Japanese hyperinflation would be disastrous exactly because it goes against what most investors have been taught to expect.

[c1ue]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

The article/blog post is unfortunately another in the long series of monetarists trying to redirect attention from the US/UK to Japan.

As I've said before (and is noted in the comments) - Japan's debt is owed to themselves. Certainly the Japanese government's ability to borrow its people's savings is coming to a close, but this is entirely a different situation than nation(s) with massive external debts as well as massive imports.

Secondly the demographic 'time bomb' is a little different in Japan than in the US/China: the existing Japanese health care system will not see the same types of cost pressures as purely 'capitalist' systems as in the US will experience.

Throw in the societal differences, and the result is a situation of grave concern but not a flaming emergency.

[Master Shake]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Bill Bonner is seeing deflation in Japan.

The world’s number one economy is running huge deficits. But the world’s number two economy is running even bigger ones. Not much bigger…but slightly bigger.

In Japan, deficits are a bit larger than tax receipts. In America, they are a bit smaller. In both cases they are enormous…and growing.

For all its colossal deficits, Japan has not bought its way out of depression…or out of deflation either. Au contraire, the more it spends fighting deflation the further prices fall.

How could this be? Another mystery. How could government be so inept as to shoot itself in the foot whenever it pulls a trigger? How could it be so near-sighted as to aim for one thing and hit the thing it was meant to protect? How could it be so lame-brained as to do exactly the wrong thing at exactly the wrong time?

We can’t answer those questions…at least, not this minute.

So, let’s turn to the evidence. There it is in yesterday’s news report from Bloomberg:

“Consumer prices in Japan in record fall.”

And there you have another mystery, don’t you? Japan inflates the money supply with its zero rates over more than a decade…and its Godzilla budget deficits. And what happens? Its economy sinks and its consumer prices go down!

http://dailyreckoning.com/economic-r...ved-mysteries/

[tacito]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Bill Bonner is seeing deflation in Japan.

Yes, he's seeing deflation now. But he expects inflation at some point in the future. See "Will Japanese Stocks Survive a Meltdown?"

That is one of the reasons he gives for being positive on japanese stocks: Inflation and currency depreciation will make their exports more competitive. The other reason is reversion to the mean.

Of course, if they get hyperinflation, that would be a disaster for the stocks. But if they manage to have a more or less controlled inflation, well, not everybody will be able to export in a peak oil economy. But the best will.

[Quincy K]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Yes, he's seeing deflation now. But he expects inflation at some point in the future. See "Will Japanese Stocks Survive a Meltdown?"

That is one of the reasons he gives for being positive on japanese stocks: Inflation and currency depreciation will make their exports more competitive. The other reason is reversion to the mean.

Of course, if they get hyperinflation, that would be a disaster for the stocks. But if they manage to have a more or less controlled inflation, well, not everybody will be able to export in a peak oil economy. But the best will.

Hyperinflation would be an absolute boom for most stocks(with little or no debt) as well as housing, CRE, widgets, etc. etc. The only thing that would be a "disaster" would be cash or bonds.

What are you talking about?

[tacito]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Hyperinflation would be an absolute boom for most stocks(with little or no debt) as well as housing, CRE, widgets, etc. etc. The only thing that would be a "disaster" would be cash or bonds.

What are you talking about?

Hyperinflation in yen would be a boom for stocks in yen. Maybe enough to keep up with inflation/devaluation and not going down in another currency. But japanese stocks will do well in other currencies if their business does well. I thing it should be very difficult to do business normally in a hyperinflationary environment. What dividends would you get from these stocks? That will be a number of yen, whose value in $ or euro will depend on how fast you exchange them.

[loweyecue]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Didn't read the full thing but if the Japanese decide to dump US Treasuries to prop up the Yen temporarily wouldn't the downward pressure on the dollar incite similar action from the Chinese? A two country race to dump dollars sounds scary. Is this possible?

[jpatter666]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Hyperinflation in yen would be a boom for stocks in yen. Maybe enough to keep up with inflation/devaluation and not going down in another currency. But japanese stocks will do well in other currencies if their business does well. I thing it should be very difficult to do business normally in a hyperinflationary environment. What dividends would you get from these stocks? That will be a number of yen, whose value in $ or euro will depend on how fast you exchange them.

That's the big question isn't it?

1 ) Should you buy Japanese stocks now or once the inflation starts (and this may be a brief interlude -- buy in the panic?)
2 ) Exchange rates are paramount -- they will determine what you are really paying for the stock and what you'll get back selling or in dividends.
3 ) Is a (foreign currency) hyperinflating stock even worthwhile from a dividend perspective or just focus on growth stocks?
4 ) Which stocks can survive a high inflation period?

[c1ue]

Re: How Japanese Hyperinflation Could Turn The Dollar Into Toilet Paper

Hyperinflation is not the only outcome possible in Japan. A devaluation, for example, is very possible.

As for stocks doing well in hyperinflation...they do well until they don't.

A study of German company's stock prices during the Weimar era showed the prices of the stock kept pace during the early stages of the hyperinflation, but failed to keep up afterwards. More importantly though, for investors outside the country in question, it is debatable just how effective this performance was after translating into their home currencies.

The reason the multinational German companies did well in the early stages of the hyperinflation was because their foreign earnings made their overall corporate numbers look good vs. other German companies. But conversely for foreign investors, the domestic performance of the same companies makes these company's performance look bad (to the international investor).

Some of this logic can be seen in the thread posted in the economics forum - a discussion between Nitzan/Bichler and another Neo-Marxist theorist. Note that Marxist in this sense refers to Marxist economic theory as opposed to Communist ideology.