Confidence Man

Robert Samuelson is the latest moneypundit to worry about Japan doing a full-bore Argentina.

You should worry, too.

UPDATE: I just re-read Samuelson’s column, because something about it nagged me. Here it is:

Vincent Truglia, who oversees Moody’s government bond ratings, says the odds of a default are still small. Perhaps 200 to 1. But the odds rise with the debt. Naturally, the Japanese government says a default is “unimaginable.” Most debt is in yen. About 95 percent is held by Japanese, who are huge savers. The government assumes that ordinary Japanese will continue to make vast deposits into banks and other financial institutions, which will buy the needed amounts of bonds.

The Japanese real estate bubble burst because of a similar overconfidence — the belief that real estate prices would always rise. They sure did. Right up until someone tried to sell off their holdings for actual cash.

Now, at what point do Japanese savers lose their confidence in the banking system, and start putting yen in the back yard instead of the bank? We don’t know. But we do know that things can’t go on as they are without consumers finally growing wise — and then comes the Argentina two-step. After that? Who knows…