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How Japan’s Meltdown Really Threatens the United States

HeroicInvesting.comThat radiation drifting on the Jet Stream, across the Pacific Ocean, towards the United States from Japan might be the least of our worries in the aftermath of the tsunami, earthquake, and nuclear incidents. The real damage from Japan’s meltdown might be done in our economy, where criminally stupid American politicians have seen to it that our country is almost broke and might not be able to financially withstand the strain when Japan starts selling treasury bonds to raise cash.

Why do they need cash? Estimates of the cleanup costs are running at about $309 billion, which dwarfs the toll Hurricane Katrina took on the Gulf Coast, and stands as the most expensive natural disaster on record. It will take years to rebuild, though rebuild they certainly will.

But what’s keeping the American political class up at nights right now is the fact that Japan’s meltdown happened to the world’s third largest economy, after the United States and China, and the largest buyer of treasury debt from the Federal Reserve. Up until now, they could be relied upon to make the daily buy that kept our economy afloat, but now that they suddenly need cash, lots and lots of cash, it’s time to sell, sell, sell.

Did you realize that the American economy has recently perpetually operated about 24 hours from bankruptcy? To make a long, complex, and uninteresting story short, we spend about $13 billion daily. Yesterday the cash balance at the Treasury Department was $14.2 billion. Anyone out there see a problem that could crop up real soon? Of course, it would help matters if we ever decided to cut spending, but since that isn’t going to happen, we’d better pray that China fills in the gap by buying more of our junk in the meantime.

Over a recent 48 hour period, the Bank of Japan flooded the local market with a cash infusion of $281 billion. As mentioned, they are not only expected to stop buying US treasury notes in the short term but become a heavy seller to raise more cash, leaving America teetering ever closer to the brink of insolvency.

Hmm, time for QE III yet?

The Heroic Investing Team







Flickr / Official U.S. Navy Imagery