Watch Out—An Economic Firestorm Is Beginning To Form: Steve Forbes

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Steve Forbes warns that a storm in the economy is forming and can be found in the currency exchange markets.  Fuel your success with Forbes. Gain unlimited access to premium journalism, including breaking news, groundbreaking in-depth reported stories, daily digests and more. Plus, members get a front-row seat at members-only events with leading thinkers and doers, access to premium video that can help you get ahead, an ad-light experience, early access to select products including NFT drops and more:  https://account.forbes.com/membership/?utm_source=youtube&utm_medium=display&utm_campaign=growth_non-sub_paid_subscribe_ytdescript   Stay Connected Forbes on Facebook: http://fb.com/forbes Forbes Video on Twitter: http://www.twitter.com/forbes Forbes Video on Instagram: http://instagram.com/forbes More From Forbes:  http://forbes.com

Transcript

00:00 An economic firestorm is just beginning to gather force.

00:04 Here's what to look for.

00:06 Hello, I'm Steve Forbes with this What's Ahead,

00:12 where you get the insights you need to better navigate these turbulent times.

00:16 Official measurements of inflation were dropping nicely

00:20 from their 2022 highs until recently.

00:24 But the places to look for the real trouble ahead this year and next

00:28 are not the numerous inflation indexes like the CPI

00:32 or even measures of economic health, most notably GDP.

00:36 Rather, pay close attention to the currency exchange markets,

00:40 most particularly the Japanese yen.

00:44 For years, Japan has been binging on debt,

00:47 which is proportionally twice ours.

00:50 The Bank of Japan, the BOJ, is intervening to prop up the yen,

00:55 money printing fuels inflation, which is causing political problems in Japan.

01:00 A weak yen is a majorly economic and political problem.

01:05 Trade patterns are distorted, generating political blowback

01:09 and calls for counter-devaluations or tariffs.

01:12 The yen's woes are not unique, however.

01:15 The world has been on a debt binge since central banks

01:18 and collaborating governments decided to suppress long-term interest rates

01:22 after the 2008-2009 financial crisis.

01:26 The idea, unsupported by real-world experience,

01:29 was that suppressing the cost of borrowing money

01:32 would stimulate economic booms.

01:35 Ignore taxes, ignore regulations, ignore government spending.

01:39 Manipulate money markets and all would be well.

01:43 Of course, the promised global boom never materialized.

01:47 What did materialize was dreadful levels of debt.

01:51 Governments could and did borrow to a fare-thee-well.

01:54 Yet with interest rates suppressed to zero or even less,

01:57 the binging looks costless.

02:00 Monetary guru Nathan Lewis, co-author of our book,

02:04 "Inflation, What It Is, Why It's Bad and How to Fix It,"

02:07 notes an astounding fact about Japan's soaring national debt.

02:11 "Interest payments and nominal yen are actually lower than in 1985,

02:18 almost 40 years ago."

02:21 No wonder with interest rates suppressed to zero,

02:24 the binging looked costless.

02:26 And for a while, it was. But no longer.

02:29 Thanks to inflation, the zero interest rate era has ended.

02:33 The aftermath is going to be awful.

02:36 Global debt is $300 trillion, almost three times global GDP.

02:41 There's never been anything like this in human history.

02:45 With higher interest rates, the ugly bills for this folly are starting to emerge.

02:50 More and more emerging nations are headed to big trouble,

02:53 as they find it harder and harder to service their debts.

02:56 But they're hardly alone.

02:58 The U.S.'s national debt is at World War II levels and rising.

03:02 As interest rates normalize, those outlays will soon double.

03:07 But Japan is the worst offender.

03:10 Until recently, its 10-year government bond yield

03:13 couldn't rise above 0.25%, one-fourth of 1%,

03:18 while the U.S.'s rate jumped to over 4%.

03:22 The result has been predictable.

03:24 The yen has weakened, and domestic inflation is rising.

03:27 What's amazing is that it's taken so long for big trouble to emerge here.

03:32 Japan has defied for years the laws of economic gravity

03:36 with its gargantuan debts.

03:38 In late '22, it briefly looked like the yen would plummet.

03:42 Both the Federal Reserve and the Bank of Japan prevented that.

03:46 But the dam is breaking.

03:48 What's very troubling is that current governments are singularly ill-equipped

03:52 to knowledgably deal with the coming currency turmoil.

03:56 I'm Steve Forbes. This is "What's Ahead."

03:59 Thanks for listening.

04:00 I look forward to being with you soon again.

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