Olivier Blanchard eyes ugly ‘end game’ for Japan on debt spiral

Olivier Blanchard eyes ugly ‘end game’ for Japan on debt spiral, by Ambrose Evans-Pritchard. According to Olivier Blanchard, former chief economist at the International Monetary Fund:

Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game. … The Bank of Japan will come under mounting political pressure to fund the budget directly, at which point the country risks lurching from deflation to an inflationary denouement.

Japan was the first country into the post-bubble zero-interest-rate zombie economy, after their credit bubble popped in 1990. Most of the West is following a similar trajectory, after the GFC saw the western credit bubble pricked in 2008. The resulting debt crisis does not go away until either debt is defaulted or forgiven, or inflated away. Politically the inflationary route is much easier, so it is no surprise this is where Japan is heading. Where Japan goes, the rest of the West may eventually follow (hopefully sooner than after 26 years of a moribund economy).