Two stories; two reasons why Japan should worry about the US

08-29-2010 Saidani

Uncle SamWe tie these stories together because of the unique relationship Japan has with the US and because both stories also relate to the US/China relationship which puts Japan in a precarious position.  For this reason, we believe that Japanese – and particularly Japanese investors – should be aware of developments in the US.

The first story comes from Admiral Mike Mullen, the US chairman of the Joint Chiefs of Staff, the highest level of military leadership in the US.

The national debt is the single biggest threat to national security, according to Adm. Mike Mullen, chairman of the Joint Chiefs of Staff. Tax payers will be paying around $600 billion in interest on the national debt by 2012, the chairman told students and local leaders in Detroit.

“That’s one year’s worth of defense budget,” he said, adding that the Pentagon needs to cut back on spending.

“We’re going to have to do that if it’s going to survive at all,” Mullen said, “and do it in a way that is predictable.”

The concerns are pointed out at Zero Hedge.

According to Admiral Mike Mullen, the Chairman of the Joint Chiefs of Staff, the “single biggest threat” to American national security is the US national debt, which is either $8.85 trillion (public debt), $13.4 trillion (total national debt), $20 trillion (total debt including GSE debt), or $124 trillion (total debt including unfunded obligations), depending on one’s definition of the word “debt.” And as Zero Hedge has long been warning, the imminent increase in interest rates (sooner or later), will eventually put the country in an untenable funding position. “Tax payers will be paying around $600 billion in interest on the national debt by 2012, the chairman told students and local leaders in Detroit.” The Chairman (the real one, not his pale imitation over at Marriner Eccles) politely forgot to add that the successful rolling of nearly $600 billion in debt per month is likely an even greater threat to national security.

This sets the plate for the next story, an interview with Joern Berninger of MI Report at in which Mr Berninger states,

Most likely we are going to see a crash in US equities within the next three weeks as a reaction to negative sentiment markets could then turn rapidly negative and eventually break through 2008 lows. That would give potential for circuit breakers and eventual sudden stops.



Which brings us back to Zero Hedge for the wrap-up.

And since debt is now the functional equivalent of a nuclear bomb, it behooves readers to know just who the biggest threats to US national security are:

We hope it is appreciated promptly enough, that the entity highlighted in red can just as easily become the biggest domestic threat to national security, should the interests it represents, both political and financial, not get their way.

For Japan, the issue of national security which is now dependent on the US comes into play.  Already the US is asking Japan to pay more for the cost of hosting the US military throughout Japan.  This cost could rise as the economic condition in the US, and particularly the US Treasury, becomes weaker. If, as Mr Berninger suggests, there is a run on US debt, either the burden of costs will rise or the effectiveness of the security arrangement will be damaged.

From an economic standpoint, the large holdings of US debt by the Japanese government seems to be heavily at risk regardless of a destructive run on US debt.  The $600 billion rollover of monthly debt issuance is enough of a problem in itself.  The Chinese have been selling US debt this year, perhaps in anticipation of problems or even as a means of further weakening the US.  On the other hand they have been buying Japanese yen, certainly adding to the recent strengthening of the yen.

There is already growing debate in Japan about the Japan/US – Japan/China relationship and the problems that being so closely tied to the US presents in furthering ties to China.  From an economic standpoint, China seems to have the stronger hand, and especially in the “green” industry on which Japan is depending for its own recovery.  China, has begun to restrict exports of rare earth minerals that the environmental – as well as tech – industry requires.

National security has generally been found among close-knit economies and especially those who share cultural heritages.  Nearly 170 years ago, Japan was faced with a similar choice about its future, either standing with the Asian community or with the West.  Now, it will have another chance. At least this time Japan and rest of Asia are in a much better position.

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