In other words, the IMF says that the United States and Japan have no plan to ever stem their deficits and record borrowing, creating “latent risks include disruption in global bond and currency markets as a result of high budget deficits and debt in Japan and the United States.” Economic counselor and director of the IMF's Research Department Olivier Blanchard stressed in an April 17 press conference that the United States and Japan are on a fiscally unsustainable path. “Insufficient progress in designing such a medium-term plan is especially noticeable in the United States and in Japan.”
But Japanese financial officials have nevertheless pledged to continue to pursue Keynesian-style economic stimulus policies. "The bank is committed to implementing additional easing measures if deemed necessary," Bank of Japan Deputy Governor Kiyohiko Nishimura announced in a speech in western Japan April 18. "We will pursue powerful easing through a virtually zero interest-rate policy and asset buying until the 1% [inflation] goal comes into view." Indeed, the Bank of Japan has done little else but “stimulate” with government spending and interest rate suppression since the Japanese economy first flatlined in 1990. Since 1990, Japanese debt-to-GDP ratios have increased from 75 percent to 230 percent of the economy and Japanese citizens have experienced no net economic growth. Indeed, the Japanese economy sunk into another recession in 2011 after the Fukushima nuclear disaster.
The idea behind the inflationary policy is to make Japanese exports cheaper to foreign consumers, but the lowered value of the Japanese Yen also means that imports will become more expensive. And with the virtual shutdown of the Japanese nuclear power supply after the Fukishima nuclear disaster, electric power is already becoming increasingly expensive for Japanese consumers and manufacturers alike as more oil imports become necessary. So while Keynesian economists such as Paul Krugman have urged currency devaluation for Japan as an economic panacea, the devaluation of the Yen will also increase production costs, offsetting much of the expected gains from cheaper exports.
The national government debt bubble is not the only sector of the bond market slated to burst. An April 18 Reuters report noted that several major U.S. cities are now on the verge of defaulting on their debts, leaving bond holders in the lurch. The Reuters report concluded, “Many failures will be due to local politicians' willingness to give unionized local government workers lucrative pensions and health care benefits when times were good. For others, the housing bust was enough to destroy their real estate tax base. They almost all share the failure to prepare for a rainy day.” Reuters added that “the next series of major cities and counties in danger of defaulting on their debt can hardly point to one single decision for their malaise. Whether it be Detroit, Miami or Providence, Rhode Island, their problems have a lot more to do with financial policies that put them on course to live well beyond their means.” Municipal bonds, which were once considered among the safest tax-free investments, are now showing high risk.