Black Swans abound as Year of Tiger starts off on a fierce note

If many of us could have turned around the moment we entered 2010 and made obscene gestures at 2009, we would have. After the wreckage of the past 12 months, 2010 has to be a good year, right? Good for governments staving off financial chaos, good for households struggling to stay afloat, good for investors wondering which rules of economics and markets still apply. It really is hard to see this year outdoing the last one in the doom-and-gloom department.

Yet the Year of the Tiger might live up to its name and be a fierce one. Here are five reasons why it may come with its share of sharp teeth and “Black Swans.”

The bill for 2009 is coming due. Look no further than Japan, which has little to show for the hundreds of billions of dollars it’s throwing at the economy. Deflation is intensifying, unemployment is worsening, the ranks of the working poor are growing and Prime Minister Yukio Hatoyama is anything but focused on these fast-mounting challenges.

Now, he faces the hangover from the 2009 borrowing binge. His 2010 budget won’t rein in deficits that threaten Japan’s Aa2 rating at Moody’s Investors Service. The plot thickens when you add a shrinking population and tax base. That’s why the cost of a five-year contract to protect $10 million of Japan’s sovereign bonds has climbed to $68,650 from $37,000 in August, when Hatoyama’s Democratic Party of Japan won power. Japan is hardly alone.

Governments are pouring untold trillions of dollars into economies financed with fresh bond issuance. The debt glut is as unprecedented as it is unsustainable. Expect credit-rating companies and investors to be sniffing around for potential debt crises, be they in China, Greece, Japan or Vietnam. Global demand remains elusive. Singapore, where gross domestic product shrank in the final three months of 2009 — the first time in three quarters — tells the story. It’s on the front lines of global trade and the annualized 6.8% drop in growth last quarter is an ominous sign.

China’s almost 10% growth is helping commodity exporters such as Australia. Not so for the rest of Asia as it tries to fill the void left by a hobbled $14 trillion US economy. An undervalued currency greatly limits the spillover benefits of China’s stimulus efforts.

Skepticism is being voiced by leading economists on different ends of the ideological spectrum. Conservative Martin Feldstein, of Harvard University, and liberal Joseph Stiglitz, of Columbia University, say growth may falter as stimulus wanes. Just ask Singapore how US frugality is working out for Asia. Trade tensions will explode. Expect China’s peg to the dollar to become even more of an issue as unemployment rates rise from Washington to Berlin.

(William Pesek is a Bloomberg News columnist. The opinions expressed are his own.)