Japan’s Problems With Debt and Depression Just Got a Lot Worse

Jim Rickards reports: Japan has been in a depression for almost 30 years, with deflation and several technical recessions along the way. Its sovereign debt burden is over 200% of GDP (more than double that of the U.S. and higher than Greece!). Negative interest rates and massive money printing by the Bank of Japan have not helped. Just when it looks like things can’t get worse, they do. Prime Minister Abe of Japan is filling two vacancies on the Bank of Japan board with compliant appointees who will go along with the easy-money policies of central bank governor Kuroda. When you remove all dissent, you create a condition called “groupthink” in which there is an absence of cognitive diversity. When everyone on a board thinks alike, there’s no one around to see what everyone may be missing. I saw this firsthand in my days at Long Term Capital Management. We had a risk committee with 16 Ph.D.s, including two Nobel Prize winners. They were very smart, but they all thought the same way because they all went to the same small group of schools and studied under the same professors. When a panic hit, they were all blind to the fact that LTCM was massively short volatility and liquidity and was set up for a run on the bank. We lost $4 billion in four weeks. The Bank of Japan now has the same blind spot because they lack divergent points of view. When their crunch time comes, the losses for investors will be in the trillions, not billions.

Bank of Japan (BOJ) Governor Haruhiko Kuroda will have a more compliant board when two upcoming vacancies are filled, which critics say could limit debate on his controversial policies and leave the bank vulnerable to government pressure to bankroll public debt. Japan is another trouble spot (along with China) that can take down the world.

Source: Bank of Japan runs groupthink risk as board dissenters depart | Reuters