# Japan's Debt Crisis Is Nearing Collapse

## Метаданные

- **Канал:** Nate O'Brien
- **YouTube:** https://www.youtube.com/watch?v=6PePq6GkNKk
- **Дата:** 14.09.2022
- **Длительность:** 19:25
- **Просмотры:** 48,279
- **Источник:** https://ekstraktznaniy.ru/video/52068

## Описание

Invest with Fundrise: https://fundrise.com/nateobrien 
Thanks to Fundrise for sponsoring this video (paid testimonial)

In this video, we discuss Japan's ongoing debt crisis. 

I am not a financial advisor. The ideas presented in this video are for entertainment purposes only. You (and only you) are responsible for the financial decisions that you make.

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## Транскрипт

### Segment 1 (00:00 - 05:00) []

hey everyone welcome back to the channel So today we're talking about the debt crisis in Japan this is something that is likely coming to a head uh sometime in the next couple of years it's something that I think everyone should be very aware of you know we hear about China and the real estate bubble there but I think the problem in Japan which is the third largest economy in the world I think this is a much bigger problem than any other country in the world at the moment and we need to talk about it today all right so I don't want to scare you with all of this and this is going to be a pretty in-depth video we're going to go through a number of slides a number of charts and I'm really going to share everything that you need to know about the Japan situation and to do this we need to go back in history and we're going to talk about 35 years the past 35 years of Japan the Japanese Central Bank I'm really hoping that I don't lose some people on this because it might get a little bit into the weeds we're going to get pretty into details so I do recommend maybe even perhaps taking some notes on this video because I think it's going to be super helpful and I just want to note that this is going to affect everyone you know it doesn't matter where you are in the world if the third largest economy in the world is having a lot of problems and they're potentially going into a recession this is going to affect everyone there's going to be contagion it's just going to happen now I want to first of all start you with looking at something like their debt to GDP ratio this is in economics this is one of the basic things to understand the overall health of an economy of a country so basically what we look at here is their debt levels in comparison to their gross domestic product their GDP which is a way to just basically measure a country's total output and like amount of goods and products and services and everything that they produce in their economy and so when we have higher debt to GDP ratios this is usually pretty bad for an economy and we see Japan having this increasingly high debt to GDP ratio it's now the highest in the world and this is for bad for a number of reasons one primarily because when you have a higher debt to GDP ratio now all of the tax dollars in a country instead of going towards you know building new Bridges and building new infrastructure and maybe having medical services for your uh people in your country instead of all your tax dollars going to that suddenly when your country has a lot of debt all of your tax dollars just go to paying off the interest and this and servicing that debt and so this is one of the problems that Japan started to face especially recently we'll talk more about that later on in depth in this video but I just want to show you that they have one of the highest debt to GDP ratios in the world which is a sign that the country could be potentially on the verge of default um now how do we get here how is Japan such a mess right now uh why is it that you know yield curve control all these problems the bank of Japan is printing tens of trillions of Yen on a monthly basis how do we get to this point and it actually all started with something back in the 1980s uh with something called The Plaza Accord so the plaza Accord uh was this thing that was meant to really help a lot of countries it was basically uh in Germany UK France uh Japan uh and the United States came together and said hey you know what we want to make sure that the U. S can still export goods and we want to weaken the U. S currency a bit and so a lot of countries got on board with this Plaza Accord but it actually had some pretty serious negative externalities to it and one of them was that what it did is it caused the currency in Japan the yen to spike it caused the uh value of the yen to go up a lot and if you watched last week's video where we talked about currency disease and how they are affected and how you can trade one currency for another if you watch last week's video then you'll know that when your currency gets a lot stronger this tends to affect your ability to export products now if you go back into the 80s into the mid 80s or the early 80s and late 70s Japan was a massive exporter of goods you know today if you look around at most things like you know maybe this computer or your phone or your shirt most things in the United States that you look at are either made in China or in Thailand or in Vietnam or in Taiwan but if you go back into the 80s and the 70s and even the 60s most products you would look at were either made in the United States or they were made in Japan so Japan used to be a massive exporter of goods but they couldn't really do that as much anymore as their currency got a lot stronger and what happened effectively is that when their currency got a lot stronger the bank of Japan the Central Bank in Japan said okay our currency is getting pretty strong let's cut our rates to try to weaken the currency a bit right and that was kind of their goal for that but the problem here and this you'll see how one step just leads to another that ends up in this point where now the bank of Japan is in this massive spiral uh we're still back in the 80s here talking about this but the problem here is that when the bank of Japan started to lower the rates and in

### Segment 2 (05:00 - 10:00) [5:00]

order to try to weaken their currency so that they could continue to be a very large net exporter in the late 80s it actually had yet another negative effect and that negative effect was that it led to a in a colossal asset bubble in Japan in the late 80s and this is why if you go look at the stock market if you invested a thousand dollars into the stock market in Japan in 1989 you would have less than a thousand dollars today more than 30 years later so you know I always laugh when people say that the stock market always goes up and you know eight percent per year all the time but the truth is that there are countries there are places where the stock market has been down for many decades and it's still not have fully recovered but this is what happened we ended up in a massive asset bubble in the late 80s in Japan due to them slashing rains because their currency was getting stronger so they tried to fix all these problems which ended up digging them into a deeper hole so we saw property values double over just a couple of years we saw the market in Japan go from about 8 000 points to 40 000 points in just a couple of years so this massive asset bubble and then the problems just started to continue more so we started to see decreasing exports that led to GDP stagnation so basically Japan which has the third largest economy in the world in terms of nominal GDP has been effectively stagnant for about 30 years and so this has been a really big problem for the government and now what happened here is that these lower rates because the rates were already low because the Government tried to stop the currency from getting so strong and they tried to weaken the currency so they cut rates led to the asset bubble but then when the recession actually happened when they started to see all these things happen in these negative things they couldn't lower rates any further because rates were already extremely low as you can see here and so basically the ability to raise and lower rates kind of was lost there because the economy was already in the gutter when rates were already at effectively almost about zero percent and that's a concern that the United States has always had as well like you don't want to be caught with your pants down where you know the FED has rates at 0 percent and times are good and then all of a sudden we end up in a recession the fed that's one of the tools that they use to raise or lower interest rates and if they can't do that it's pretty problematic now I have to give Japan credit for something and it's that they have always been extremely crafty and extremely just far ahead of the U. S fed and of central banks all around the world the Japanese Central Bank has been the most uh just intuitive that they've done so many things uh that were so far ahead like for example quantitative easing uh people think of that you know during like the 2008-2009 2010 when the FED started building up its balance sheet but actually Japan had been doing this decades earlier so Japan tends to find these tools for their central banks much earlier than anyone else just because they're in such a dire situation right now at the moment so after all this happened right after we had the asset bubble in the late 80s in Japan then they were faced with yet another problem which was deflation so deflation uh you know most people probably know what inflation is right it's probably the buzzword of the Year everybody knows inflation and everybody knows that inflation High inflation is not very good right it's pretty bad so but don't get caught up in thinking that deflation which is the opposite of inflation is good all right it's not good deflation is generally bad because what happens in this case is that people will say you know what why would I spend a dollar today when I can wait till next year and I can buy even more with that dollar so people start to hoard cash people stop investing into businesses and this is what happened with Japan after their massive asset bubble uh popped in the early 90s and so people started to hoard cash people stopped investing into pretty much anything in Japan they stopped buying real estate they stop buying stocks they stop buying everything and just started to hoard cash this is also pretty bad for an economy and led to more of a spiraling downfall of this country and of this economy so this is where we entered in with you know and the bank of Japan had a lot of other things as well that they went on that they'll talk about but this is where they came up with something called yield curve control and this gets a little bit into the weeds here and you know can be a little bit confusing to some people but I'll try to explain this as best as possible because this is a really important tool to understand and I wouldn't be surprised to see the United States try to do this at some point in the future as well now before we continue on with the video I want to briefly mention the sponsor today's video which is fundrise so fundrise is an investing platform that allows you to invest into real estate without having to do the heavy lifting yourself so personally I didn't want to have to go out find properties and then buy them and find tenants and deal with the day-to-day stresses of being a landlord myself and that's why I choose to invest my money through a platform like fundrise which really streamlines the process of investing into real estate and they have a really simple really smooth app that's intuitive and easy to use so there's five different plans anywhere from the starter plan all the way up to the Premium plan for fundrise so here we have the starter basic the core which is what most people do which has a five thousand dollar investment minimum for the core plan and then we

### Segment 3 (10:00 - 15:00) [10:00]

have the advanced and the premium plans as well on the higher end now let's quickly take a look at the fees because I think this is really where fundrise beats any of their competition so for this platform we're looking at a 0. 15 annual advisory fee plus annual Asset Management fees up to 0. 85 which if you've invested into real estate funds in the past you'll know that these fees are incredibly low and yet another reason why I choose to invest my money through a company like fundrise so if you want to get started investing with fundrise you can go to fundrise. com Nato Brian or click on the link below in the description to get started today okay so in order to try to stop deflation the bank of Japan then said we're going to bring on this new thing called yield curve control where they want to keep the 10-year Japanese government bonds somewhere between 0 and 0. 25 percent for the yields and basically the idea behind this in basic terms is that if you have low interest rates it should in theory stimulate the economy because maybe it uh incentivizes businesses to take on loans and incentivizes people to you know take on mortgages and buy stuff and take out loans essentially to try to stimulate growth right and so the government of Japan in order to keep this 10-year bond somewhere between zero and 0. 25 percent they had to make sure that they were always constant buyers of these bonds to keep it in that range but that's the basics of it so what they had to do is flood the system with money so that they were buying bonds constantly and so the way the bonds work is that if you have a lot of people selling bonds the yields actually go up on those bonds so it's kind of an inverse of what you would expect but that's just how the bond market works and so if people are selling their Japanese uh 10 years right then the bank of Japan has to buy up all those bonds and so what's happening right now and they've been doing this for a number of years and it's been kind of okay but what's happening right now is that it's getting out of control and basically Japan now the bank of Japan is buying so much in bonds that they now own over 50 percent of their own debt now with modern monetary Theory they say you know that you can kind of continue to do this and print your own money if everything's based on your own money and all your debt is denominated in your own money then it kind of like that's what all of modern monetary Theory kind of goes around all right and so as you can see here uh we have the uh Bank of Japan's balance sheet in comparison to their GDP right and so starting about 10 years ago we started to see a really massive uptick in the balance sheet of the bank of Japan basically they had to start buying more and more Bonds in order to keep the yield on the Japanese tenure between 0 and 0. 25 percent and in order to keep that between zero two and point two five percent they started to buy tens of trillions of dollars in Bonds on a monthly basis especially recently and so um and its black line here is the GDP of Japan which as you can see has been pretty much flat for this entire time that they've been going through this process so where does the big problem come in like what's the big issue here all right and the big issue is that with this yield curve control program that the government of Japan has now fully committed to they can't really back out of but that's the point they can't back out of this because if at any point the bank of Japan stops buying tens of trillions of dollars uh tens of trillions of Yen uh worth of bonds uh if they stop being a buyer what's going to happen is that this yield on the Japanese debt is going to go absolutely ballistic I mean it's going to go up you know first one two three four five percent it's going to continue to go up it could go up to double digits and what happens in this case is that it would basically nuke the entire economy because if the yields on this debt were that high and everybody was selling everyone was getting out if you wanted to start a business in Japan take on any debt in Japan you would be able to do it at you know maybe 15 20 25 interest something absolutely absurd and that's the big problem there so if the government of Japan doesn't continue to just pour in hundreds of billions of in U. S dollars terms um of of money then the entire economy is essentially screwed and that's the basics of it um we can go even more in depth here I'll show you just another thing here here's a chart of their bond buying program and they really accelerated this a lot um just in the past six to uh 12 months and they started to buy a lot more in bonds because the yield curve let's go back to the other slide here the yield curve has started to shoot up because there's a lot of people selling their bonds there's a ton of selling pressure right now and that puts a lot more buying pressure on the bank of Japan to continue buying even more and more um so here's just another chart here just showing you uh just like the level of sellers right now at the moment and like I said the bank of Japan now owns over half of the total debt of the

### Segment 4 (15:00 - 19:00) [15:00]

Japanese government so basically the bank of Japan is financing all of the government expense is but the bank of Japan is part of the government so it's just a very weird sort of Ponzi thing going on here at the moment all right now I want to show you just one more thing that's effectively the nail in the coffin for the bank of Japan here in Japan as a whole uh is that at some point in the past decade Japan said you know what let's start buying ETFs let's start buying stocks to try to continue to just beef up this economy and just add more cards and more toothpicks to try to hold up this entire house of cards here and so what they started doing is they started buying ETFs and so now they own about seven percent of the total Market in Japan which is about uh six trillion dollar total Market in Japan so over 500 billion dollars uh in total equities and the other problem here is that you know at least with bonds if you're doing a bond buying program you know you can let those bonds reach their maturity date and you can just not buy more bonds theoretically but with something like equities you know if you have hundreds of billions of dollars in equities on your balance sheet you can't just unload this I mean this is a 80 percent of the country's ETFs are owned by the government so they can't just go and sell these at any point and so this is just yet another problem that they're faced with and they actually kind of toned this program down because I think they realize that it's probably going to be a disaster if they start buying up all the stocks in the country because they're not going to have any ability to sell it if you're the primary owner of all the equities and you know that's just another Ponzi there as well so this is what we're looking at here what's going to happen this is the last chart that I'm showing you uh what's going to happen with Japan how is this crisis going to unfold can the government continue to just kick the can down the road look all the central banks have been doing this for decades now the United States has been doing it luckily we've just been on the right side of it because we're the world's Reserve currency um but what's going to happen here I think is that the bank of Japan can't keep up with this they're gonna have to craft fold at some point and yields are going to shoot up I mean they just can't keep buying especially if there's so many sellers unless there's just no sellers left at some point but these Traders are making a killing off the back of Japan and I think these yields are going to shoot up and Japan's going to go into a very serious recession because yields are just going to be too high for any type of debt and you know the third largest economy going into a recession is probably going to bring down the rest of the world now here's one thing to say I don't know when this is going to happen okay and this is why you shouldn't make trades or Investments based off of what I'm saying here because this could happen this year or this could happen five years from now they could come up with more tools they could do more to continue to Kick the Can down the road this could happen a decade from now so there's really no ability to try to predict this and there's that saying that quote that you always have to live by is that you know the markets can stay irrational for longer than you can stay solvent right so don't try to bet against this it's a pretty sticky situation but it's not one that I think is going to be really easy to predict the timing of how long Japan can last before it really just the House of Cards comes down and it's going to bring the whole world down into at least a recession I don't know I don't want to talk about depressions because I think you know the economy overall especially in the United States is pretty strong but it's just something to be aware of you know I don't hear many people talking about it uh and the last part actually here is actually just looking at the US dollar in comparison to Japanese Yen so the Dollar's been getting a lot stronger but yet it's weaker for obvious reasons people are flooding out of Japan uh with their Investments they're dumping their Japanese Investments going into American Investments or going into other Investments around the world in bonds and also you know inequities and everything else and so uh this is what we're seeing so uh how this is going to play out I'm not sure feel free to leave your thoughts Down Below on this and let me know which video you want to see next week I'm thinking about making a very long in-depth basically tutorial about how the bond markets work I know it sounds so boring but I think it's actually really interesting to me and I've kind of realized on this channel I'm just going to make the videos that I enjoy making I kind of got tired of like the 13 minute you know how to save money videos they're just really boring and I've said everything I need to say about that and I'd love to get more in depth on this stuff if you want to hear it okay so there thanks for watching the video and I'll see everybody in next week's video