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Daily Missive

Japan Death Spiral Update: Now Inflation Is Spiking

Loading ...Addison Wiggin

June 5, 2024 • 5 minute, 29 second read


Japan Death Spiral Update: Now Inflation Is Spiking

“How did you go bankrupt?”
“Two ways. Gradually, then suddenly.”
–  Earnest Hemingway, The Sun Also Rises


[Special Reminder: In case you missed our recent announcement, The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge here. If you’ve been a member of The Essential Investor, please keep an eye out for your new benefits.]

June 5, 2024 – Today’s missive turns to Grey Swan Investment Fraternity member John Rubino. He’s noting the trouble Japan faces given its high debt load and rising inflation.

Japan’s woes have often come years ahead of those in other developed countries. During the 1980s, it seemed like Japan was going to take over the world with its growing financial prowess.

Instead, it peaked. After Japan’s Nikkei 225 index hit an all-time high on December 29, 1989, it took until 2024 to make a new one.

Could that be the fate of other Western nations facing high debt loads and the challenge of higher interest rates?

John lays out the choices Japan faces today, and which other nations will follow in the not-so-distant future.

Note that there are no good choices, only a chance to have a “least bad” outcome. Enjoy ~~ Addison

CONTINUED BELOW…




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CONTINUED…

Japan Death Spiral Update: Now Inflation Is Spiking

John Rubino, John Rubino’s Substack

Pretend you’re running a central bank and your primary job is to maintain a stable currency. Then assume that your long-term interest rates are around 1% and an important inflation measure is spiking to near 3%. What do you do?

Normally, you’d raise interest rates to one or two percentage points above the rate of inflation, producing positive real interest rates that encourage saving and discourage borrowing, thus slowing growth and bringing inflation back to a safe level.

But now assume that your federal government’s debt is 260% of GDP. Pushing interest rates up by another two percentage points will increase government interest costs by an intolerable 5% of GDP.

So you have two choices: Let your inflation run out of control (i.e., let your currency collapse) or protect your currency and bankrupt your government.

Well, here in the real world, that’s exactly the dilemma facing the Bank of Japan, and they don’t have any more answers than you did in the above hypothetical. Here’s an excerpt from a Wolf Richter report on the situation:

Services Inflation for Japanese Businesses Spikes by Most since 1991, Bank of Japan Gets Lots of Rate-Hike Ammo

The producer price index for services that Japanese businesses buy jumped by 0.82% in April from March, after a similar jump in March from April, according to data from the Bank of Japan. On an annualized basis, both those jumps amounted to just over 10%.

In the data that exclude the consumption tax hikes in the past, the April spike boosted the year-over-year increase to 2.9%, the worst jump going back to 1991.

The fiscal year for Japanese companies begins in April, and many of them adjust their prices at this time, and a big portion of the month-to-month price spikes in March and in April were a result of companies jacking up their prices on services they provide to other companies. They’re now passing on their wage increases.

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The services that contributed the most to the year-over-year surge in prices were:

  • Civil engineering and architectural services: +7.5%
  • Other technical services: + 5.9%
  • Training and development services: +6.7%
  • Machinery repair and maintenance: +5.5%
  • Waste and industrial-waste disposal: +5.1%
  • Software development: +4.5%
  • Commodities inspection, non-destructive testing, and surveyor certification services: +5.4%
  • Leasing of computer and related equipment, communications equipment, motor vehicles, etc.: +5.3%
  • Hotels: +22.3%
  • Ocean freight: +16.7%
  • Domestic air passenger transportation: +10.1%

Businesses that pay for these price increases in services will pass them on to their customers. Wages are a big factor in services inflation. The BOJ has been pointing at inflation in services as a sign that inflation has been spreading throughout the economy – and it has been.

The Bank of Japan has more than enough inflation-related reasons to hike its policy rates with substantial rate hikes, not minuscule-type hikes of the kind it performed in March from negative 0.1% to 0%. Its refusal-to-hike policy in the face of rising inflation has caused the yen to plunge to about ¥157 to $1 currently, as it’s ultimately the currency that ends up dealing with these kinds of monetary sins.

So the yen has to keep falling?

If the alternative is a bankrupt government followed by a plunging currency, it would seem that the best of a bad set of options is to raise interest rates only modestly (if at all) and let the yen go where it goes.

In other words, welcome to the eventual fate of all fiat currencies. And welcome to the solution:

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~~ From, Grey Swan member, John Rubino.

So it goes,

Turn Your Images On

Addison Wiggin,
The Wiggin Sessions

P.S. Japan is just the proverbial canary in the coal mine. With high debt levels and high government payments, it’s no surprise that central banks continue to add to their gold holdings aggressively. Investors may want to use the recent dollar pullback in the metal to add to their holdings, and take some wealth out of fiat currencies.

P.P.S. In the June issue of the Grey Swan Bulletin, Mr. Rubino also helps us understand how modern governments go bankrupt – slowly then abruptly – and what that portends for the U.S. as we collectively endure the excruciating crisis of politics in Washington.

(How did we get here?  An alternative view of the financial, economic, and political history of the United States from Demise of the Dollar through Financial Reckoning Day and on to Empire of Debt — all three books are available in their third post-pandemic editions.)

(Or… simply pre-order Empire of Debt: We Came, We Saw, We Borrowed, now available at Amazon and Barnes & Noble or if you prefer one of these sites:Bookshop.org; Books-A-Million; or Target.)

Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com


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July 14, 2025 • Andrew Packer

Looking at your gold stock holdings with an eye to how much share dilution they’ve done is critical to your investment success.

Share dilution is real across any industry. But how shares are being diluted, and what they’re being diluted for matter.

In the resource space, that means paying close attention to the value of any announced acquisitions, the total shares outstanding, and how that company is performing relative to its underlying resource.

That can make the difference between a good investment, a middling investment, and a killer investment.

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July 14, 2025 • Andrew Packer

In 2023 and 2024, gold prices trended higher. That trend has continued this year, with gold prices rallying over 20%.

In prior years, gold mining companies have been conspicuously absent from that rally. But in 2025, they’re starting to move up – and at a faster pace than gold:

Gold mining stocks should perform better than gold during a rally. Why? Imagine a gold company has total cash costs of $1,500 per ounce.

At $2,500 gold, they make a profit of $1,000 per ounce. If gold rallies to $3,500, a 40% rally, the miner’s profit goes from $1,000 to $2,000 per ounce – a 100% jump in profits.

That’s the power of investing in gold mining companies. Aside from the first half of 2016, this is the best setup for gold mining stocks since the early 2000s. It’s not too late to buy gold stocks if you haven’t done so yet.

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Truth matters.

Free and fair money, whether measured in gold ounces or satoshis – a one-hundred-millionth of a bitcoin – can compel a governmental and political system to stay honest. Or at least within some rails.

Fiat currencies, which are determined by those same governments, provide unchecked power, including the ability to keep some in power despite clear abuses of it.

History shows time and again that it’s the power to destroy.

Public confidence has been hit with a one-two punch of hefty inflation the past few years, and a sense of a two-tiered justice system that projects those in power who were harming children.

In a time of rapidly-declining trust in traditional institutions, it’s more important than ever to make sure you hold gold and bitcoin.

I know I sound like a broken record – but every day, there’s about 3 billion more reasons to hold those assets. And that’s just the daily increase in America’s federal debt.

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Gold: The Only Thing Standing Still

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Since the US confiscation of Russian assets in 2022, pretty much every pull back to 50-day moving average (red line) has been bought, and they continue to be bought. The average is now flattening out, as you would expect with this summer consolidation, rather as it did late last year. Some sideways consolidation is good. Ideally, you want to see the short-, medium- and long-term moving averages all flatten and converge. There often follows a big move higher.

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