I cannot emphasize how serious a situation we are in on two fronts (1) Sovereign Debt Crisis and (2) Pension Crisis. These are really global problems that are going to explode in our faces. In Europe we have the Sovereign Debt Crisis has spilled over into the banking system since banks were required to have sovereign debt as their reserves. Create unsound government debt and you simultaneously undermine the banking system That is killing two birds with one stone.
Then there is the Pension Crisis. This is widespread throughout Europe and America. Pensions have needed 8% on average to meet obligations. But governments need low interest rates to reduce deficits. This is a battle that will end very badly because they will be unable to keep rates down artificially and as pension funds are forced to invest privately, rates will rise.
Japanese savers are expected now to begin pumping in almost $700 billion into the stock market under tax free incentives.The Japanese government is now trying to deal with the Pension Crisis facing the nation with the world’s oldest population and lowest interest rates. The Japanese the Pension Crisis is reaching critical mass. The Nippon Individual Savings Account program, will now begin allowing individuals to buy 1 million yen ($10,145) a year of risk assets that are EXEMPT from taxes on dividends and capital gains for five years. The plan is expected to draw in as much as 68 trillion yen through 2018, with 65 percent of users pulling money out of bank deposits to purchase securities. Here too, we should expect to see this pressure push interest rates higher.
Expect this trend to also filter over and feed into the US share market. There will be equity funds and US shares that pay good dividends unlike those in Japan. This is part of the potential Phase Transition on the horizon for the US share Market into 2015.75.
