Greek Fire Would Be Nothing Next To A Japanese Tsunami

While I've written extensively about Greece's bailout, Japan's situation is actually much more precarious.

Public debt is expected to hit 200 percent of GDP in the next year as the government tries to spend its way out of the economic doldrums despite plummeting tax revenues and soaring welfare costs for its ageing population.

Based on fiscal 2010's nominal GDP of 475 trillion yen, Japan's debt is estimated to reach around 950 trillion yen -- or roughly 7.5 million yen per person.

Japan "can't finance" its record trillion-dollar budget passed in March for the coming year as it tries to stimulate its fragile economy, said Hideo Kumano, chief economist at Dai-ichi Life Research Institute.

"Japan's revenue is roughly 37 trillion yen and debt is 44 trillion yen in fiscal 2010, " he said. "Its debt to budget ratio is more than 50 percent."

Without issuing more government bonds, Japan "would go bankrupt by 2011", he added.

The question then becomes "When does Japan's bond market go under?"  The good news is Japan has a massive account surplus so the risk of that bond market collapsing is much lower.  The bad news is that means the results will almost certainly be a continued long deflationary spiral instead of a collapse.

But if that collapse does happen, and as Japan's debt-to-GDP ratio rises that possibility grows, then all bets are off.  Keep in mind there are plenty of countries in the economic danger zone right now and they will continue to remain there for some time.  Greece is only the beginning of the secondary effects to 2008's financial meltdown.