The Next Panic

[MachineGhost]

Definitely not a MMR believer.

Instead, the Japanese government is using private savings to fund current spending, such as pensions and wage payments. With projected annual budget deficits between 7 and 10 percent of GDP, Japanese savers are essentially tendering their savings in return for newly issued government debt, which is not backed by hard assets. It is backed only by an aging, shrinking population of taxpayers.

http://www.theatlantic.com/magazine/arc ... _page=true

[dualstow]

I've been reading this same article in my paper copy of 'The Atlantic'. Good stuff and another reason to run a pp.

[Ad Orientem]

That was an excellent and sobering read. Thanks for posting!

[Benko]

Silly question: what does MMR stand for

[stone]

Silly question: what does MMR stand for

I think it means "Modern Monetary Realism". AFAIK it was a reaction to the fact that the Modern Monetary Theory (MMT) crowd claimed that a Job Guarentee was a neccessary part of a MMT system. MMR is supposed to be a description of the monetary system of USA, Japan, UK etc as it actually is now.

[stone]

I'm not sure that Japan really is in a doom scenario. They have a demographic hump but they have no shortage of labour or other real resources in order to deal with it fine. In fact having a vast number of affluent 90 year olds is a perfect way to provide employment opportunities (providing care and entertainment for them etc) in a country that is already so well developed that all human needs can be met with very few man hours.
The Japanese wealth/debt is in a large part held as post bank savings by the elderly and is intended to be spent down so that they can live out a comfortable old age. IMO that doesn't pose any problem at all. As the demographic of 90 year olds reaches its peak the government deficits can be reduced because there will be less net saving.
That seems a totally different scenario from one (such as the UK and US governments seem hell bent on facillitating) where almost all of the wealth/debt is held by a few aggressive speculators determined to rake in 20% CAGR and redeploy that newly gathered wealth in gathering more, squeezing the economy drier and drier.
The UK and US system has the typical pension saver being bamboozled into actually receiving a negative real return on savings due to buy high sell low panics, profit distribution via volatility etc with Wall Street harvesting for itself all of the deficits that our governments are flooding the system with. The Japanese system of idiot proof post bank savings with zero inflation seems wonderful by comparison.

[Gumby]

That was a pretty dumb article IMO.

MMR is just a mechanical description of why debt-based fiat monetary systems never have any trouble servicing their debt. It doesn't mean a country can't choose to default (as Russia did), but MMR just explains the mechanics of how a debt-based fiat country that owes no foreign debt and has a free-floating exchange rate can always issue an infinite amount of debt and never have trouble servicing it. (Much like a kid can explain why a pinball machine never runs out of pinballs). Most people use MMR for investing strategies, and it has been very successful in reading Macro environments.

Japan can issue an infinite amount of debt and never default. They've purposefully set up their system in this way. Those who dismiss MMR (and logic) have continued to get burned time and time again. For instance, the following article — not even written by an MMRer — explains why the whole 'Japan is going to default' argument is fundamentally flawed.

Kyle Bass's Most Famous Trade is a Disaster and It's Never Going To Work