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World Crisis scenarios for the 21st century – Worldwide economic depression – (update 17)

Posted by Adrian on February 17, 2009

World Crisis scenarios for the 21st century – Worldwide economic depression – (update 17)

Japan is now in a depression. The Japanese economy has been followed extensively on morbius glass since the onset on the global recession. Japan was interesting situation as the country tried to secure exports with China after the US slumped. As we know China could be facing a very nasty downturn, hence it has effected export counties in the Asian region severally, namely Japan.

Japan also is a very good example that a stimulus package does not work, instead leading to distortions in the FX markets. In Japan’s case a high YEN, as opposed to collapsing currencies elsewhere. This is because money is being taken of of countries where their interests rates are falling and general capital flights (weak goverment t-bonds). So safe havens are sought out, the Japanese Yen is relatively safe comparable to very risky currencies like the EURO, GBP and USD. Of course this put pressure on Japanese exporting – so a continued downward spiral has occurred for the Japanese economy.

Japan is a bellwether for Asia, in which would indicate the US is but a whisper away from a depression (if it isn’t already in one). So with Japan as a good example of capital flights out of Western developed countries like the US and the UK (a discussed this can be seen with the rise of the Japanese Yen). This would also show that the markets are wary of countries that are trying to re-capitalize without outside investors. So as they print more currency and attempt to self capitalize, the market is now factoring two things: inflation and protectionism. Which are both inevitable, as governments with their incompetent policy makers will ignite inflation and a trade war.

(For Japanese related blog posts, please type “Japan” in the morbius glass search option.

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