Akio Mikuni doesn’t have a very bright outlook for the US:
Dec. 24 (Bloomberg) — Japan should write-off its holdings of Treasuries because the U.S. government will struggle to finance increasing debt levels needed to dig the economy out of recession, said Akio Mikuni, president of credit ratings agency Mikuni & Co.
The dollar may lose as much as 40 percent of its value to 50 yen or 60 yen from the current spot rate of 90.40 today in Tokyo unless Japan takes “drastic measures” to help bail out the U.S. economy, Mikuni said. Treasury yields, which are near record lows, may fall further without debt relief, making it difficult for the U.S. to borrow elsewhere, Mikuni said.
“It’s difficult for the U.S. to borrow its way out of this problem,” Mikuni, 69, said in an interview with Bloomberg Television broadcast today. “Japan can help by extending debt cancellations.”
Have we fallen that far? Weren’t we the ones offering debt relief to third world countries over the last few years? Mikuni has more recommendations:
Japan should also invest in U.S. roads and bridges to support personal spending and secure demand for its goods as a global recession crimps trade, Mikuni said.
Japan’s exports fell 26.7 percent in November from a year earlier, the Finance Ministry said on Dec. 22. That was the biggest decline on record as shipments of cars and electronics collapsed.
Combining debt waivers with infrastructure spending would be similar to the Marshall Plan that helped Europe rebuild after the destruction of World War II, Mikuni said.
“U.S. households simply won’t have the same access to credit that they’ve enjoyed in the past,” he said. “Their demand for all products, including imports, will suffer unless something is done.”
The plan was named after George Marshall, the U.S. secretary of state at the time, and provided more than $13 billion in grants and loans to European countries to support their import of U.S. goods and the rebuilding of their industries
Mikuni is right; the only way we can start growing again is to reduce our debt burden. If Japan and China don’t do it (and I don’t think they should or will), we will have to pay it down ourselves. There are only three ways to do that. We either buckle down, work harder and save our way out which will take years (5-7 years by my estimate), we default on our debt or we devalue the dollar and inflate. The work hard and save method takes longer but has the virtue of being the right thing to do. The default method is quicker but the consequences last longer as we would find it pretty hard to borrow in the future. The inflation method takes a long time, is dishonest and has the same long term consequnces as default. Of course, our leaders have chosen door number three.