Barnaby Is Right

Started out, just drinkin’ beer
I didn’t know how or why
Or what I was doin’ there
Just a couple more
Made me feel a little better
Believe me when I tell you
It was nothin’ to do with the letter

Sometimes I wonder
What all these chemicals
Are doin’ to my brain
Doesn’t worry me enough
To stop me from doin’ it agai-ai-ain
Wipin’ out brain cells
By the millions but I don’t care
It doesn’t worry me
Even though
I ain’t got a lot to spare-are-are

– The Nips Are Getting Bigger, Mental As Anything

If Treasurer Swan had enough grey matter to comprehend what is happening in the global economy Ponzi, then he’d probably be turning to the drink by now.

Because Japan’s economy is getting smaller.

From Bloomberg:

Japan’s rebound from the March earthquake and tsunami sputtered in November as production and retail sales tumbled, deepening the nation’s return to the deflation that first took hold a decade ago.

Industrial output slumped 2.6 percent from October, more than all the forecasts in a Bloomberg News survey of 29 economists, a government report showed today in Tokyo. Retail sales slid 2.1 percent…

“Fundamentally, Japan’s economy is on a downward slope,” said Yoshimasa Maruyama, chief economist at Itochu Corp. “Exports are falling and negatively impacting Japan’s economy due to the global slowdown.”

…

“Industrial production is unlikely to recover to” levels seen before the 2008 global financial crisis, Junko Nishioka, chief Japan economist at RBS Securities Japan Ltd., said before today’s reports.

Other data also suggest Japan’s recovery may be stalling. Exports fell for the second straight month in November from a year earlier and capital spending in the third quarter dropped 9.8 percent.

Japan is our second biggest export market.

According to DFAT, as of October 2011 … before the November slump reported by Bloomberg … our exports to Japan were worth 62% of our exports to China:

The world’s third largest economy is also the most debt-laden nation on the planet:

Click to enlarge

Back in June we brought you the warning that our biggest economic danger could be hiding in plain sight.

It’s worth recapping:

Buy a farm house in the middle of nowhere, pick up a gun or two, prepare for hyperinflation and brace for a catastrophic bankruptcy. Thirty minutes with hedge-fund manager J. Kyle Bass has you wanting to do all of the above.

The head of Dallas-based Hayman Advisors LP isn’t thinking about Greece or even Spain but Japan, the world’s third-biggest economy. He says his bet against Japanese government bonds is even “more compelling” than his gamble to sell short U.S. subprime-mortgage debt, which earned him $500 million in 2007.

Shorting Japan has been a losing proposition in recent years. But the earthquake, tsunami and nuclear crisis altered the outlook for a nation whose debt is more than double the size of the economy. Bass says a collapse is inevitable, making Japan’s 10-year bonds — they yield 1.3 percent, among the lowest in the world — a natural for a bear investor.

His argument is this: Japan now spends half of its central- government revenue on servicing debt. This task won’t get any easier as the country’s population ages and shrinks — provided rates stay the same. What’s more, the price tag for the earthquake and its effects will far exceed Japan’s initial $300 billion estimate, pushing the country over the edge. In Bass’s view, the biggest asset bubble ever is hiding in plain sight.

Feel like a drink?

It’s almost NYE after all.

Tags: barnaby joyce, debt deflation, depression, exports, japan, wayne swan