By Kevin DeMeritt
© 2002 WorldNetDaily.com

Everyone knows about the"straw that broke the
camel's back."

You can pretty much imagine it happening. Straw by
straw. The camel first slows up under the heavy load,
then staggers, then, with one final piece of yellow
straw, hits the ground with a broken back.

Not that it should have come as any surprise. You
could tell it was going to happen. You didn't have to
have the gift of prophecy.

Likewise, when it comes to Japan, that last straw may
well come April 1 of this year. Except it isn't exactly a
straw. It's an anvil.

This anvil involves Japan's all-important deposit
insurance that has, single-handedly, maintained
citizen confidence in that country's beleaguered
banking system. That's because the protection it
afforded was unlimited. What it said was, whatever
you might lose to a crashing Japanese bank, no matter
the amount, will be covered through
government-administered insurance.

But come April 1, this insurance protection will
undergo a drastic change: It will then be limited to
just $75,000 - that's the anvil - and it simply isn't
sitting well with the Japanese people.

The emergency measure that's become an emergency
itself

Unlimited deposit insurance in Japan was part of 1996
emergency legislation designed to calm an
increasingly nervous population. It came as the
country's 10th-largest bank, the fourth-largest
securities firm, a major life insurance company, a
securities house and several smaller banks all failed.
When it grew obvious that Japan's largest financial
institutions wouldn't pitch in to help the smaller,
sicker ones, unlimited deposit insurance became a
necessity.

It was designed to reassure the Japanese public, and
for years it did. Certainly, the scary economy would
eventually straighten out and consumer confidence
would be back on track. Government administrators
reasoned that the limit could be safely lowered to
$75,000 by 2001. Rethinking their decision, they
extended the deadline to 2002. Now that we're here,
though, things are even worse. All the life signs of the
ailing Japanese economy are bottoming - and that
includes the life signs of the banking system, too.
Some 46 small banking and credit institutions have
failed in 2001. To end unlimited deposit insurance
now, in the midst of an economy teetering on the
brink of insolvency, could be the mother of all wrong
acts at the mother of all wrong times.

For one thing, the coming change means an
unthinkable $1.5 trillion of the Japanese public's
money in banks will be left unprotected. If the
economy were otherwise healthy, this might not be as
big an issue. But, within the current setting, it's
almost a naked admission by the government that
more banks, bigger banks, are going to fail in 2002
and beyond, and there simply aren't enough
resources to cover them. After all, unlimited deposit
insurance is not a trivial responsibility for any
government to assume. Historically, it has cost
upwards of 20 to 50 percent of an affected country's
gross domestic product just to bail out bad banking
institutions.

Long lines at gold dealers

All of this isn't lost on the Japanese people. In
anticipation that nothing is going to derail limited
deposit insurance come April 1, weary citizens are
taking action into their own hands. Or, put another
way, they're taking gold into their own hands.

There literally are lines in front of gold dealers in
Tokyo lately, an image reminiscent of the 1980 gold
rush days in America. Gold dealers report brisk sales
of up to four times the levels of a year ago, and even
greater in some regional areas where problem banks
exist. Gold prices, in terms of the yen, are at
three-year highs, too. Dealers see only acceleration
ahead.

This can paint a nightmarish scenario for Japanese
banks. Panics don't always happen overnight.
Sometimes they need time to build momentum. They
can start out as a small leak in a giant dam - the
growing number of consumers now buying gold, for
example. But just as that leak expands and more and
more Japanese tell their neighbors that they"just
bought gold and you should too before April," a
bigger chunk of that $1.5 trillion in unprotected funds
will migrate to gold. As should be obvious, this
would only weaken already weak institutions and
hasten a scenario that the ending of deposit insurance
only promised. Ominously, and as Forbes recently
reported,"A recent drop in savings of 9.5 percent at
smaller financial institutions (in anticipation of the
end of these deposit guarantees) is a sign that this
(crunch) may have already begun."

Buying before it dawns on the American public

Of course, should even a tiny percentage of that $1.5
trillion in unprotected funds end up in gold - the
asset of last resort - the price of the precious metal
would go absolutely stratospheric. After all, there's
"only" been 120,000 tons of gold mined since the
beginning of time, having a collective value of"just"
$1.3 trillion. This market is not limitless. Indeed,
migrating bank deposit cash could quickly skyrocket
already bullish gold, a far likelier destination for that
freed-up yen than the Japanese stock market, where
$475 billion was lost in 2001 alone.

Lest you think that this is solely"a Japanese problem,"
you might want to re-think. Japan's four largest
troubled banks claim assets totaling $3.7 trillion, and
much of it is invested in the U.S. For just one example,
there's $333 billion worth of U.S. Treasuries and U.S.
bank loans. A run on Japanese banks would only
mean the calling in of several of these international
loans. And, if that happened, as Forbes puts it, an
"economic contraction would sweep America and the
globe."

All of which really means two things. First, since it's
going to take some time to diffuse the Japanese time
bomb, the country's gold rush is likely to last for
quite some time. Secondly, in lieu of deposit insurance
hanging around for another year or two, it's only a
matter of financial self-defense that you diversify
your portfolio with gold - especially now, before
even more massive Japanese gold buying puts you
squarely behind the investment curve and that anvil
lands on that poor camel's back.

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