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| Kyoto, 1980; Tokyo, 2016 |
I first lived in Japan back in 1979.
The economy was five times larger than China’s. Its population was young and vibrant. Its government debt was less than 50% of GDP.
Now, when I go to Japan, I see an entirely different country. Its economy is less than one-half the size of China’s. Its population is the oldest in the world. Its debt, at 250% of GDP, is five times worse. And Prime Minister Abe’s victory in a spot election this weekend has given him the mandate to borrow-and-spend even more.
Each problem compounds the other in a vicious triangle:
One of the main reasons the debt is so large is because the government has made so many commitments to transfer resources from young working people to old, retired people.
And one of the main reasons the economy has fallen so far behind is because supporting so many elderly is such a crushing economic burden for the shrinking number of young people.
In the early 1980s, I worked as a financial analyst at a major Japanese brokerage firm in Tokyo. My average workday was 11 hours, Monday through Friday, plus six hours on Saturdays.
I like work. So I had no complaints.
But at the time, most Japanese companies had been looking for a way to ease up a bit on the workload. So they introduced a new, “liberal” policy of giving us a day off on the third Saturday of every month. Whoopee! A weekend once a month!
I thought that was going to be a trend, and it was — for a while. Now, though, due to the shrinking workforce, many employers in Japan are reverting back to the old days.
Nearly nine out of ten companies can’t fill their job openings. Nor do they want to hire foreign workers. Friends of ours who run the country’s leading recruitment firm have tried to persuade them to do so, but with little success.
Instead, the companies are demanding even more from their young employees, sometimes worse than the 1970s.
The pressure to perform is so intense, many simply have no time for a relationship. Marriage is a pipe dream. And all this compounds the …
Demographic Timebomb Exploding NOW
In 2015, Japan’s census confirmed that its population decreased for the first time since the government began counting in 1920. It is now expected to shrink from 128 million to less than 85 million in the next five decades.
The proportion of elderly will reach a mind-boggling two-fifths of the total.
Already, the number of truly old people in Japan (90 and above) has topped 2 million for the first time.
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Meanwhile, the number of 18- to 26-year-olds has been falling for over two decades. In 1994, there were over 18 million in this age group. Now there are fewer than 11 million, down by about 40%.
In the wake of this demographic disaster, small towns across Japan are on the verge of collapse.
The bulk of the population is clustering around the Tokyo-Osaka corridor. In 1950, 53% of Japan’s population lived in urban regions. Now it’s close to 95%. In at least 15,000 communities, HALF of the population is over the age of 65.
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In some rural regions, families tear down unused homes, turning the land back into fields.
Bears attack settlements in Japan’s north.
Wild boars ravage farmland across the main island of Honshu.
The full responsibility for rice fields and vegetable gardens falls on folks 80 years or older, despite disability and illness.
Japan’s “Solution”: Tax the People to Death
In 2014, Japan’s consumption tax (like a national sales tax) went up from 5% to 8%. Still another big hike — to 10% — is already law. (Due to Japan’s economic doldrums, it has been delayed until October 2019.)
Japan’s inheritance tax, already among the highest in the world, was jacked up even further in 2015. Standard exemptions were slashed by 40%. Suddenly, the number of average citizens subject to the inhreitance tax surged.
Why such big tax hikes despite a mediocre economy? Mainly because there are fewer people to tax.
In any case, it hasn’t helped very much. After peaking in 1983, the government’s tax revenues have been going mostly downhill. Receipts from inheritance taxes plunged nearly in half, mostly because of a decades-long crash in land values.
Debt Doomsday
Compared to trends in GDP or the stock market, these kinds of trends in debt and demographics are relatively slow-moving.
They build up over a period of decades. People go about their lives and take them for granted. They’re mostly oblivious to the consequences.
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The United States has similar troubles, just not as extreme.
“Don’t worry,” say the analysts. “It’s just slow-moving lava.”
So despite these horrendous pressures building up over time, Japan’s economy grows a bit. Its stock prices rise. False hopes spring eternal … until, that is, the tipping point.
When and how will that happen in Japan?
With his just-announced election victory, Abe will reform the nation’s pacifist constitution, opening the way for a major build-up in military spending. The country’s already-huge debt load will grow even larger; the need to float government bonds, even more urgent.
Then, events will unfold in very much the same way they did in 1990, when Japan’s stock market crashed and its economy sank into a multi-decade depression.
The Bank of Japan will raise interest rates — just one notch.
Bond investors will pull back — just a wee bit.
They will start selling their long-term government bonds — not in huge amounts at first, but enough to tip the balance of supply and demand for bonds. Enough to precipitate a pretty siginificant decline in bond prices.
As bond prices decline, other investors, including Japan’s largest insurance companies and pension funds, will begin to unload their bond holdings.
Suddenly and without warning, Japan will face its Doomsday of Demographics and Debt.
It will blow up. And in the process, trillions of yen in flight capital will flow to the safest safe haven on the planet — the United States.
It will drive up stock prices in one last-hurrah!
And U.S. investors in the know — who buy the assets that foreign money WILL be chasing — could make several fortunes.
This is not going to be put off to some far-away future date. It is on the verge of starting right now. And it’s bound to accelerate very, very quickly.
That’s a key reason why I invited you to join our Supercycle Investment Summit last week.
And it’s why we’re leaving the video recording of the first session online for now. But due to the timely nature of its contents, it must go offline tomorrow.
So if you missed it or would like to view it again, click here, and it will begin playing on your screen immediately.
Good luck and God bless!
Martin
Dr. Weiss founded Weiss Research in 1971 and has dedicated his entire career to helping millions of average investors find truly safe havens and investments. He is Chairman of the Weiss Group, which includes Weiss Research and Weiss Ratings, the nation’s leading independent rating agency accepting no fees from rated companies. His last three books have all been New York Times Bestsellers and his most recent title is The Ultimate Money Guide for Bubbles, Busts, Recession and Depression.
{ 21 comments }
Everything you say here makes perfect sense and at least from a democrathic perspective similar to what Dent has been saying. Most of us know you can’t borrow yourself into long term prosperity as the world is doing these days and a time of reckoning must come. I guess with everything appearing so big we just can not get our minds around where this is taking us and when. Thank you for helping us do just that. Thanks, George
It’s only half similar to Dent, George. Dent predicts a US crash, Martin predicts the US is going to have a pretty good time when all those dollars flow into the US from Japan and then Europe, where I live.
Personally, I believe what Martin says is basically correct.
US stocks that are strong, PM’s and short Europe, Japan are the way to go!
Rog
I think the solution to Japan’s problems, and ours as well, will be technology. Where we are concerned because robotics and AI is going to eventually put most of our workforce out of work, this can be of benefit to everyone if we can make the cultural adjustment to share the economic benefits across the board and not allow it to benefit only the small fraction of very wealthy individuals. They and we are going to need to explore the prospect of Universal Basic Income (~$75K per family) and Maximum Wage (~$1M in salary and perks) in formulas that provide a comfortable living for all but leave enough of an incentive for people to work to reach the maximum. I am, and have been a “devout” fiscal conservative and have had to swallow the notion that it is good for our country, if not the entire world, for us to allow those who produce nothing to have a life. Our aim should be to support the technological growth along with that cultural transition.
Like all government edicts Min/Max wages would benefit some and hurt others. $75K might be comfortable for two or three people, but would be less so for a large family of eight or ten. And when a family gets to $1M, they would have no impetus to keep on going if government would confiscate any excess. With a large minimum wage, employers will have less to use to improve the business, and prices would rise until the $75K would have the same buying power as maybe $15K today. Despite what the politicians would have you believe, government is your enemy, not your friend.
Honored Sir: You can’t be serious? Surely, you know enough of human nature to see the utter impossibility of your proposal? We have seen the corrosive effects of welfare in this society, and you propose a wider-scale but “comfortable” version of it? You can envision this utopia, because you, as a thinking individual, can envision yourself in such a situation and be able to maintain your humanity in it. The masses will be able to do no such thing, despite the level of “comfort” you envision. I don’t know where you live, but picture this: move the masses in your city to the prosperous suburbs and tell me how that works out. People, meaning humans, are goal-oriented organisms. With no work and no purpose, we get lost souls despite comfort. How do you think rich or even middle-class kids get to be drug addicts? Please reconsider your proposal, which is an honest attempt at a solution but a prescription for misery. Many thanks and best always. PM
I don’t see how this could work for several reasons. Ones continued competition in the world economy requires the possibility of out producing and earning more than they do. Capping your income is an incentive for the very best to move to a higher paying country. For example, notice where corporate inversions are going?
Where do we get the 75,000 per year from? Increasing taxes more or confiscation from the productive?
Japan’s problems are directly related to borrowing/ taking too much from the working minority to support the non working elderly majority,
Free enterprise works best. Let us prosper!
Who is going to pay this UBI and if people can get $75000 a year for doing nothing who is going to work?
If $75000 becomes the new minimum wage the prices of everything will adjust and no one will be any better off than they are right now.
Dear Doctor Weiss,
Thank you for the better understanding of current economy of Japan — especially the potential demographic effects on Japan’s Bonds.
In the article you stated: “The United States has similar troubles, just not as extreme.”
Question: If convenient, can you provide more USA demographic statistical information like that presented regarding Japan? As an appreciative subscriber to your Gold Mining Millionaires program that information will be useful…and perhaps as well to others.
Thank you for the always useful and actionable insights!
Best regards,
JFS
is there a transcript??
I agree with mark. I don’t feel like I have time to watch long-winded videos, but could take in the data in a shorter time with a transcript, and can refer back to early statements or data when I wish. I think videos are basically a waste of time, and almost never watch them.
I was born in Japan to American missionary parents; (I’m now 65 years old)), I lived there a total of 14 years and learned Japanese fluently, I have not been there for 48 years now. What Mr. Weiss has written here is exactly correct; Japanese companies will not willingly hire foreigners, they WILL however go to massive lengths to steal American technology as China is and has been doing, while our Govt for the most part stood idly by. Their predatory trade policies made them rich and weakened America greatly in the past 60 years. Events are now cascading down upon them. They had a “bushido” spirit back then, and it still remains so at the largest company helmsmen. Japanese workers started vacationing with co-workers instead of their own families many, many years ago. They also ignored God. They are reaping the fruits of their ways now. I well remember how TOYOTA STOLE (no missprint here) General Motors’ Catalitic Converter designs around 1973-4 and GM won a $430 M lawsuit through the US Commerce Dept. but the Govt WOULD NOT enforce it. This was but a tiny fraction of their thefts/espionage of TOYOTA, much less Japan Inc against the USA. Russia, SKorea and especially China, have been the largest of those foreign govt’s in this “game”. SONY stealing from AMPEX, WOLLENSACH, video and recording equipment (USA), MITSUBISHI and KAWASAKI stealing from LOCKHEED and MCDONALD-DOUGLAS; (F104, F4, F16, F15) countless secrets including composite wing technology (and the USA finally LICENSED those 2 companies to produce those top line American jet fighters in Japan. They even threatened to sell their “copies” to other nations if we didn’t give them our latest Fire Control tech as well as radars–in ABSOLUTE violation of their unwisely cpbegotten agreements.
In the Tokyo Auto Show of 1968, the CHRYSLER Plymouth Fury, Chevy Caprice/Impala and Ford Galaxy 500 were displayed. However, they would cost a Japanese buyer about $25-26,000.00 initially (after ALL the TARRIFS), then came the annual Japanese “Shakken” tax, approximately equal to the US market purchase cost–
EVERY YEAR ! Needless to say, not many American sales there ! They deny this today;
but this is the TRUTH. It came to be that the majority of US cars were purchased by high flying Prostitutes and the underworld YAKUZA. I know, I was there….they would not even allow US Servicemen to sell their US cars to Japanese citizens, but had to return them to the USA, unless of course, they scrapped them…in which case, they were very happy to oblige them. I could go on about TOSHIBA and Russian Submarine propeller tech theft–of AMERICAN TECHNOLGY, but it goes on and on. Japan has only been a “friend” of the USA by taking shield under our Nuclear Umbrella and the continual Industrial Espionage that has ensued (Oxygen Blast Furnaces (Steel) etc. Now SKOREA is playing the predatory auto game against us, and our clueless GOVT has made certain that our largest automakers (who massively aided the WWII effort) were badly damaged, and thanks to the OBAMA idiot, Chrysler is an Italian owned company ! FIAT a bumbling loser of an organization that was able to FLEECE General Motors out of $3 Billion by questionable dealings that GM should have NEVER entered into. Fiat would have vanished without that stupid deal.
ITS HIGH TIME TO LOOKOUT FOR AMERICA ! The time is late; we FINALLY have a President that cares for HER, but he is opposed by breathtakingly foolish people and also may hardcore TRAITORS. JIMMIE D. NORTON
I was very proud to work at one of the greatest companies in the world: GMC Truck, General Motors for 30 years and retired from that great American Company. I worked in the Experimental Engineering Department there as an Experimental Vehicle Builder of Prototypes Vehicles.
I am not quite clear about that trillions of yen in flight capital that will flow to the US stock market. If there is a sudden collapse a huge chunk of those trillions of yen will vanish in the collapse of asset prices (bonds and stocks), capital controls will suddenly restrict outflows to maintain much needed capital at home, inflation will consume what can not leave and devaluation of the yen will reduce what is able to make it out. How much will actually end up in precious metals, cryptocurrencies or used to pick up land and other asset bargains at home? The demands of that elderly population and the government it depends on will simply not stand by to allow extensive capital flight in such an emergency. So, how much capital will actually reach the US stock markets? Scrapping from an empty pot, that’s what!
I disagree with Martin
I think irt will be a slow burn before the demographics cause problems .This I recon might take another 10 years.
Dont think its this October or next year.
John D
Government borrowing is a Ponzi play.
Don’t they all come to an end when money stops flowing in…?
Dear Dr. Weiss – When I was a kid lieutenant at Palm Beach Air Force Base, back in 1955, I had no idea how finance worked. All I knew was that one of Palm Beach’s banks would lend me $250, so I could go marry a Texas gal. Because I am now 83, I thought I would not be around to see what’s about to happen, first to my old friends in Japan, and now here. Fortunately, I’ve been following your advice for years. My financial adviser thinks I’m a little strange, wanting such a high percentage of my liquid assets in precious metals. I may yet see the day I’ll need them. Please keep the advice coming.
My best regards to Palm Beach
At issue here is the idea of a system requiring permanent growth, which is an oxymoron. We are likely at the end of this phase of humanity. The Weiss group, the champion of cycles, should understand this situation better than any. Martin Weiss, a charitable and kindly man by nature, who reminds me of a nurturing college professor, is trying to help people into, through, and out of what promises to be a challenging and likely even dangerous transition to whatever is next. I hope he is successful. Best always. PM
The Japanese have a strong work ethic tied to Honshu.
All the money that Japan/USA etc have ” printed ” cannot disappear . Where is it ? It can only be with people somewhere . Are these people ” Rothchilds , the English Royal Family , Bush family , Goldman Sachs and etc ” ? I would like to know !!!!
warren i noticed you seemed to have missed the most corrupt first families ever in the history of the U.S. the OBAMAS + CLINTONS
Demographics is scheduled to get much worse as people are living longer than ever. 100 years is becoming the new 70. Partly this is because heart disease is a big killer; but heart disease is about to become rare, as people learn they need about 1,000 mgs of vitamin C each day, due to the fact that our gene for making vitamin C in our livers is mutated and non-functional. Vitamin C is necessary for making strong collagen, which will prevent heart disease. Read the article “Why animals don’t get heart attacks, but people do.” Google it! Vitamin C is cheap.