The Japanese government’s economic revival strategy which has been dubbed “Abenomics”, has proven to be a failure. We warned that the Sovereign Debt Crisis will begin in Europe, then hit Japan, and in the process push the dollar to record highs which will inject deflation into the  US economy. Moreover, only a rising dollar will send the US economy down, but it will also create massive currency losses for the some $9 trillion in emerging market debt denominated in dollars issued since 2007. This is an amount equal to about 50% of the total US National Debt.

S&P has now downgraded Japan to A+ stating that Abenomics “will not be able to reverse this deterioration in the next two to three years.” As the world turns down from this debt crisis, capital will concentrate in the USA pushing the dollar higher. This will hurt more debtors than ever, but this is what will be necessary to dethrone the dollar from the status of being the reserve currency.