There are fantastic abnormalities taking place in front of our very eyes. The 10-Year Treasury Note is yielding just 1.58 percent and gold, despite a recent pullback, stubbornly sits above $1,700 per ounce. In other words, people are simultaneously expecting deflation and inflation.

Then there’s the stock market. One “analyst” says it’s poised for a fall. Another says it’s consolidating for its next great run up. Both are right – and wrong – as far as we can tell.

The S&P 500, if you hadn’t noticed, is below where it was at the turn of the millennium. Back then everyone knew that, over the long run, stocks always go up. But these days the long run is understood to be much longer than it was back then. But how long is the long run?

Over in Japan, for instance, they’re exploring just how long the long run really is. On January 29, 1989, almost 23-years ago, the NIKKEI 225 closed at 38,916. Yesterday it closed at 9,545…down over 75-percent after all this time.

Japanese investors who bought in December 1989 have watched their stock shares languish for a good part of their adult lives. Surely, 23-years from now, the NIKKEI will have made a new high…that should be enough of a long run, right?

Japan’s Trade Balance Goes Negative

Nonetheless, a new definition of ‘stocks for the long run’ is not all that Japan is exploring. They’re also exploring record low bond yields. On Wednesday, yields on Japan’s 10-Year Note fell to just 0.70 percent – less than half the yield of a 10-Year U.S. Treasury Note, which is also at a record low.

At the same time Japan’s debt, as a percent of GDP, is at 220-percent. Obviously, this expands the limits of what’s logically possible…yet it is happening in plain sight for everyone to see. By comparison, that’s double that of the United States. Different than the United States, however, Japan has financed its debt domestically.

The way Japan has been able to get away without borrowing from foreigners is through its positive trade balance. By exporting more than they import Japan’s population could use their proceeds to support their government’s budget gaps. But those days may have come to an end…

In 2011, Japan ran a trade deficit for the first time since 1980. This has continued in 2012. In fact, Japan has registered a trade deficit every month this year except February and June. If this keeps up, they’ll have to rely on foreigners, who will likely demand a higher yield, to buy their debt.

The point is, while the U.S. is preparing to find out what happens when taxes are raised and spending is cut in unison, Japan is preparing to find out what happens when the government debt structure implodes…

Are You Ready?

“Japanese saving rates are rapidly falling as the population ages,” explains The Economist. “The share of the working-age population in Japan is plummeting, and total saving rates are falling as a result and may eventually turn negative.

“But Japanese government liabilities are only growing. At some point, the stock of government liabilities will grow larger than the stock of total domestic saving, so that even if everything the Japanese saved was used to buy government bonds, the government would have to rely on foreign lenders to cover some of its borrowing.

“Foreign investors, it is assumed, will demand better rates of return, particularly given the possible risk of eventual default. Rates will rise, and the jig will be up. Even under optimistic assumptions, the end is only a decade away.”

Japan’s experience shows that the demise of an advanced industrialized nation can take much longer to befall than one would anticipate. But it will eventually happen all the same.

The United States appears to be following in Japan’s footsteps. However, having had a massive trade deficit for decades, the U.S. will not be granted the luxury of running its debt up to over 200 percent of GDP. When taxes rise and spending is reduced the U.S. economy will sputter.

That will give President Obama, and his brain trust, the crisis they need to really make a mess of things. What’s more, people will demand it. No doubt, the government will spend in earnest…until the dollar cracks.