The 8 Major Problems The Next President Will Face
By Tyler Durden
Authored by John Mauldin of MauldinEconomics.com,
Dear Donald and Hillary:
In around ten months, one of you will wake up as Mr. or Mrs. President. After the fabulous fun of post-inaugural balls, you will walk into the Oval Office on Saturday, January 22 and launch into your first 90 days in office.
During these days, you will want to deliver on as many of your promises as possible. But instead of shadowboxing with hypothetical futures on a debate stage, you’re going to be up against cold, hard reality.
My suspicion is that six months into your presidency you will begin to wonder why you ever wanted this job, as the gulf deepens and widens between what you wanted to do and what you can do without unintended consequences.
To make your job just a little more manageable, what I would like to do is take you around the world and review some of the economic realities faced by our global partners.
For many of them, those realities are not pretty. They may be far more limited in what they can do to respond to your proposed agenda than either they or you would like.
First, let’s do a quick overflight of the economic problems you will have to deal with in various regions the world.
Problem #1: Japan
Japan has run up a debt of almost 250% of GDP, and that monumental debt is growing every year. Japan’s deficit stands at nearly 8% of GDP, the equivalent of a $1.2 trillion deficit in the US.
The country’s nominal rate of GDP growth has remained almost flat for 25 years, the result of unrelenting deflation. The Japanese 10-year bond market used to be one of the most liquid in the world.
Now, if the Bank of Japan is not in the market, there is literally no trading. If the Bank of Japan were not buying bonds, interest rates would rise precipitously; and the government of Japan would be bankrupt in short order.
In order to avoid a deflationary depression, Japan is monetizing not only its deficit, but a great deal of its outstanding debt. This move has of course pushed the Japanese yen down against the dollar—by some 40% in the past few years.
The problem is that Japan has no choice but to continue down that path.
As an aside, most mainstream US economists (the very economists you will likely turn to for advice) are telling Japan that it needs to do more quantitative easing, not less. The yen is likely to become markedly weaker on your watch; and, frankly, there is very little you can do about it without sending Japan even further into recession/depression.
Such an event in Japan would have serious impacts on global growth and trade. (We’ll get into some details below as to what your options are.)
Problem #2: China
Like Japan, China has a massive debt problem. But unlike the people of Japan, the majority of China’s citizens still live in …read more
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