This page has been archived and commenting is disabled.
DPJ set to win Japan election; may demand Seppuku bonds
Japan's ruling party for the past 50 years is set to lose the national elections tomorrow. The LDP (Liberal Democratic Party) have ruled Japan for the vast majority of time post-WWII. They are set to be replaced by the DPJ (Democratic Party of Japan) amid global economic depression and high unemployment (CNBS propaganda notwithstanding). What does this mean for America?
This is a complicated situation. The first important consideration is that the DPJ have been making nationalist/populist noises which may or may not be followed through. These include the possible loosening of controls on the Japanese military-industrial complex for export, which has been mostly prohibited since 1976. Japan has a massive arms industry with some of the most advanced equipment on Earth, which could be potentially destabilizing and infringe on US, Chinese, or Russian arms industry turf. What does this matter to you, finance nerd? Why economic collapse and war always come together. There are remarkable parallels here with the U.S. and Western Roman Empire.
Japan's Arms Industry Is Growing
Japanese SSM-1 Surface to Ship Missile System (Mitsubishi Heavy Industries)
Japan has $4.8bn yearly in international arms sales. They are ranked 5th globally and growing.
Japanese Robotic Fish. Yeah, pretty fail. Don't cut us off Japan! (Mitsubishi Heavy Industries)
So we can see here we have the potential for a 'guns and butter' economy in Japan, much like the U.S. at present. Picture swarms and swarms of the robotic fail fish, and you have a picture of the nightmare which may ensue should Mitsubishi's employment become a political issue. There is also the potential for a more independent Japan which enters a policy more favorable to domestic interests rather than U.S. interests. This here is the key.
Japan's Economic Policy and the DPJ
For those interested in a more complex analysis, it is suggested you visit our globalist paymasters at their Website here. They have provided the world sheep with an excellent analysis of this situation. However, the Japanese military-industrial complex is not our focus here -- despite the fact that JOSHUA is indeed still playing the game. Rather the key threat is a Japanese political realignment that results in fundemental economic policy changes. In this vein, the DPJ 's finance minister threatened in a little noticed article in May.
Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.
The chief finance spokesman of the Democratic Party of Japan, Masaharu Nakagawa, told the BBC he was worried about the future value of the dollar.
Japan has been a major buyer of US government bonds, helping the US finance its Federal budget deficits.
But, he added, it would continue to buy bonds only if they were denominated in yen - the so-called samurai bonds.
"If it's [in] yen, it's going to be all right," Mr Nakagawa said in an interview with the BBC World Service.
http://news.bbc.co.uk/2/hi/business/8046599.stm
Indeed we can see that Japan is the U.S. second-largest creditor after China, so this is not trivial at all.
Could the new Japanese government demand payment in yen?
What many may not understand, as has been mentioned repeatedly at the excellent blog FOFOA, is that hyperinflation and deflation are closely related. Deflation and currency crisis are not mutually exclusive. This is precisely what happened in 2008 in Iceland. While the banking sector in Iceland was in tatters, resulting in bank runs, bankruptcies on a massive scale etc, the Icelandic Krona decreased by more than 50% against the U.S. dollar.
The issuance of any significant amount of credit in yuan, yen, or in PetroState currency is a key source of a possible death blow to the U.S. dollar. There are many possible death blows, and they grow by the day. Mish is fond of saying there has never been a hyperinflation in history where land values do not rise. On the contrary, it is our contention that a 50-90% reduction in U.S. dollar purchasing power constitutes 'currency crisis' rather than 'hyperinflation', semantics notwithstanding. Indeed M3 can contract while M0 and M1 expand. This appears the situation towards which the United States is heading. Incidentally -- this does not necessarily mean housing values rise -- simply that the dollar will fall by 50% or more on the international markets. This would cause immediate doubling in the prices of all essential items, such as food and fuel (as well as gold and oil). This situation is quite common in the third world, where labor and land costs are extraordinarily cheap, but prices of essential items are expensive.
The issuance of US bonds denominated in foreign currency is a key source of the potential 'grey swan' which will serve the United States a cutoff notice. Hedge your portfolio accordingly.
»
- advertisements -
Excellent post
"This would cause immediate doubling in the prices of all essential items, such as food and fuel"
i'll give ya fuel but aren't we self sufficient in food?
You may be "self-sufficient" in food in a sense that you have the capacity to produce it. However, what da ya think fertilizer is made from ? F*cking oil. What da ya think the farming machines run on ? Hint- its not f*cking ethanol. What da ya think farmers's supplier's wrokers use to go to work ? Daya know that average phood travels 1500 freaking miles to land on shelf in yore grocery store ? F*cking insane when ya realize how much we depend on the f*cking stuff...
You may be "self-sufficient" in food in a sense that you have the capacity to produce it. However, what da ya think fertilizer is made from ? F*cking oil. What da ya think the farming machines run on ? Hint- its not f*cking ethanol. What da ya think farmers's supplier's wrokers use to go to work ? Daya know that average phood travels 1500 freaking miles to land on shelf in yore grocery store ? F*cking insane when ya realize how much we depend on the f*cking stuff...
The man who moved yen/dollar markets in the 90s, Mr. Yen, Eisuke Sakakibara (a former Finance Ministry official who has played an important role in drafting the DPJ's election campaign manifesto) will be a key player in the new govt, possibly finance minister. Samurai bonds may have been his idea.
As vice minister of finance for international affairs in the late 90s, he was in constant contact with the US administration(Summers in 1999) and advocated coordination of currency related policies.
His recent 'predictions' regarding the dollar: nov 2008 80 yen; may 2009 100-110 yen. Traders should look forward to volatility.
Where are the United Arab Emirates on the chart of the tresuries holders ??
They would be included in the oil states
The man who moved yen/dollar markets in the 90s, Mr. Yen, Eisuke Sakakibara (a former Finance Ministry official who has played an important role in drafting the DPJ's election campaign manifesto) will be a key player in the new govt, possibly finance minister. Samurai bonds may have been his idea.
As vice minister of finance for international affairs in the late 90s, he was in constant contact with the US administration(Summers in 1999) and advocated coordination of currency related policies.
His recent 'predictions' regarding the dollar: nov 2008 80 yen; may 2009 100-110 yen. Traders should look forward to volatility.
The immediate impact of yen-denominated samurai bonds would be to strengthen the dollar since our government would have to trade the borrowed yen for the sovereign currency. Down the road, the US would need to sell dollars for yen in order to repay the debt. So the net effect on the dollar would be the interest paid in yen, not the whole debt.
However, any deterioration of the dollar against the Asian currencies will inflate the prices for their exports which will further degenerate US consumer demand which will force more Asian factories to close which will increase their already formidable unemployment problems.
Why would Japan game their investments at the cost of their economy? As long as they keep the yen weak against the dollar they can temper their current deflationary collapse. To allow the yen to rise would be counterproductive to the quantitative easing they are using to reflate their economy.
0.
"The immediate impact of yen-denominated samurai bonds would be to strengthen the dollar since our government would have to trade the borrowed yen for the sovereign currency."
Excellent point.
The man who moved yen/dollar markets in the 90s, Mr. Yen, Eisuke Sakakibara (a former Finance Ministry official who has played an important role in drafting the DPJ's election campaign manifesto) will be a key player in the new govt, possibly finance minister. Samurai bonds may have been his idea.
As vice minister of finance for international affairs in the late 90s, he was in constant contact with the US administration(Summers in 1999) and advocated coordination of currency related policies.
His recent 'predictions' regarding the dollar: nov 2008 80 yen; may 2009 100-110 yen. Traders should look forward to volatility.
There is another problem looming in all this. Foreign investors and governments are rejecting US currency in favor of US assets.
For example, Noble America (owned by the HK firm descended from Clavell's "Noble House") owns much of the oil being pumped in Colorado, having taken over from various US or Canadian firms.
http://www.thisisnoble.com/images/documents/assetbook2009d.pdf
We are watching the quiet cashing in of bonds for assets.
Jim Willie had a provocative post about "Dragon Bonds" a month ago...
http://www.gold-eagle.com/editorials_08/willie072909.html
excellent piece! thank you Zero Hedge for posting!
Project Mayhem - since you have been enlightened on the purpose of FOFOA's mission, perhaps you could post a guest entry at ZH on the subject of "Freegold", and why it is critically different from a fixed gold standard?
yeah the inflation/deflation debate has gotten far too binary with most people on one side or the other. Expect the unexpected and in the current state of complete fiscal lunacy by the US policy makers, currency crises would be my bet to fill that role.
As an aside I haven't been back to the UK for a while but now I'm here prices rises are evident in everyday things, can't be denied. Their inlation figures are complete bollocks in my opinion.
I think the Chinese government brought up the possibility of renminbi based UST's about a month ago. I bet if they ask nicely it can happen.
Japan's opposition party says it would refuse to buy American government bonds denominated in US dollars, if elected.
This is either a fantastic bluff or this new oposition party wants to see it all burn. Either way they are going to get a very stern talking to by Turbo Timmy, maybe even the CEO himself. They'll come around.
While the point about currency repudiation happen as prices rise is well taken, I don't see it going that smoothly in the US. Last step before the gig is up is the final liquidation IMO. No telling how long it can last but I figure we should expect a solid month of firesale prices as the dollar's last gasp.
US influence on Japan is already waning:
http://search.japantimes.co.jp/cgi-bin/nb20090820a2.html
Japan may "come around" on the surface, but Uncle Scam will have to make some serious under-the-table concessions to appease the new leadership.
Maybe they just didnt get the memo that they can swap their agencies for treasuries with a little help from the fed?
"Either way they are going to get a very stern talking to by Turbo Timmy, maybe even the CEO himself. They'll come around"
Somehow, I just don't think "Yeah, you heard us right - 9T over 10 years - suck it" is going to be as persuasive as it used to be.
What makes anyone think that Japanese politicians are an different from ours? Firing off suggestions of accepting payments only in yen was a useful tool to gain power, but it is the same thing there as it is here: more "Change You Can Believe In." (shouldn't it be "change in which you can believe?")
Meet the New Boss, Mrs. Watanbe (or whatever Mrs. Japan's name is.) And yes, he IS the same as the Old Boss. No worries here, at all.
While your at it wish for a pony. I'm american and I've known for 2 weeks that we are headed for isolation. We can monetize debt easily without devalueing the dollar because peeing in the pool isn't that big of a deal. But when it becomes a jacuzzi people are going to notice.
a MARKET CRASH TO SAVE TREASURIES WOULD HAVE A PURPOSE. BUT WHAT HAPPENS IF THE US MARKET DROPS BUT OTHER MARKETS DO NOT DROP WORLDWIDE BECAUSE YOU DO NOT SEE MONEY TRANSFERS BACK TO THE UNTIED STATES. IN THAT INSTANCE YOU HAVE NO NEED FOR MASSIVE FLIGHT TO SAFETY, NOT GREAT TREASURY ABANDONMENT AND FASTER FLIGHT OUT OF DOLLAR ASSETS AS NOBODY WILL BUY TREASURIES WITH LOWER RATES.
CHINA DROPPED 20 PERCENT. OTHER MARKETS WORLDWIDE JUST HAD A NICE CORRECTION. WHO SAYS THEY WILL CORRECT WHEN WE DO THIS TIME. WE JUST HAD A GREAT OPPORTUNITY TO DO THIS, YET IN THE US WE LEPT HIGHER WITH A SHORT SQUEEZE LAST WEEK DESIGNED BY BERNAKE'S COMMENTS. tHAT PUSHES THE DOLLAR LOWER.
death by CapLocks...
Yes! We've definitely decoupled from China!
Their market can FALL 20% while their economy can GROW---at least on (rice) paper---by 8%. And our market can go UP 40% while our economy SHRINKS.
Maybe that topsy-turvy notion has something to do with the fact that China is on the other side of the world than the US and gravity works differently on the bottom. Anyway, it's all good.
Amazing. Someone has actually hooked up a teletype machine to the internet.
+1
Fuck! I just spit hot coffee on my keyboard. Still laughing as i try to type
/.
LOL! 50 BAUD
I AM CHUMBAWAMBA.
iT IS NOT ROCKET SCIENCE. jUST LOOK AT THE HSITROY OF THE DOLLAR. HEADED DOWN PERIOD. THE FOOL WHO MENTIONS WHAT THE PRICE OF OIL IS. gOLD REMAINS NEAR HIGHS OF LAST YEAR WHILE OIL HAS DROPPED 50%. RELATIVELY IT HAS HUGELY OUT PERFORMED.
SUMMERS HAS STATED HE WANTS A LOWER DOLLAR, AND IT HAS BEEN MY POSITION THAT THE UNITED STATES WILL CAUSE INFLATION AND A LOWER DOLLR TO BAIL OUT THE MARKETS. THAT IN FACT THIS WAS ALWAYS THE PLAN, BUT CAN NOT BE SAID. THERE IS NO OTHER WAY TO EXPLAIN THE ACTIONS OF THE FED AND OUR GOVERNMENT. aNALYSIS VIA POLICY STATEMENTS JUST GIVES FALSE DIRECTIONS. wE HIT A RECORD LOW LAST YEAR AND ARE RAPIDLY REACHING THAT AGAIN. THE LOSS ON THE DOLLR SINCE THE END OF THE CRISIS HAS EXCEEDED AS A PERCENT THE GAINS IN MARKETS. wHEN PEOPLE WANT TO ADD THEIR TWO CENTS THEY SHOULD AVOID THE EMOTIONS OF NATIONALISM BECAUSE IT CLOUDS THINGS. FOR THOSE WHO DO REALIZE THAT OUR CURRENCY IS DOOMED i SUGGEST YOU READ HISTORY. bUT THE ONLY THING MOST OF YOU WILL ACCEPT IS: USA NUMBER ONE. STUPID JINGOISMS. LIKE BUSH "BRING IT ON". .THERE WILL NEVER BE A CURE FOR STUPIDITY OR NATIONALISM. FOR THE NATIONALISTS PLEASE DO NOT ASK ME FOR MONEY WHEN YOU DOLLR HOLDINGS ARE WORTHLES.
FOR ALL INTENSIVE PURPOSES A CURRENCY CRISIS AND HYPER INFLATION ARE THE SAME THING.
Since there exists no super power rival to the US, there is no war in which the US can engage in which would use up enough weapons to support a massive military-industrial expansion.
Nor is multiple wars a substitute for a large war with a super power rival, as demonstrated by the US "failure" in Iraq and Afghan.
The dollar could collapse, but against what? Other currencies or against commodities? Other currencies would simple devalue. Against commodities: rising commodity prices would kill off any global economic expansion, triggering massive deleveraging.
Currency depreciation is what this is all about. The ability to pay one's debts in local currency goes to pot.
Iceland has a hyperinflation with dropping real estate. No one wants to live there and no one has any money. When you have a 200% increase in foreign goods which the country depends on, that is hyperinflation.
What is weird is that you do not need to print money to have hyperinflation. You just need people to repudiate the money. Printing is one thing that will cause people to repudiate a country's money. Another thing is anarchy or communist revolution. EVeryone wants out, and the money, though it will buy a loaf of bread is not worth what people want: A ticket out of the country. Basically it comes down to the inability to tax the citizens to make government debt good. That is when the currency becomes worthless, whether printed in excess or not.
And the USA is rapidly losing its ability to collect taxes to pay its debts. Just ask Vallejo, CA, California, New York, and the $100T in unfunded federal liabilities.
Great point about currency repudiation, IMO. One thing seems clear to me: regardless of whether you're an inflationista or a deflationista, I don't think anyone can dispute the fact that we are in entirely uncharted territory and, thus, outcomes are entirely unpredictable. We all have our guesses, but overnight our currency could disintegrate with little to no warning. Or they could keep the casino going without great tumult for several more years.
These times boggle the mind.
This is what did them in
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Great piece PM, thanks!
Any move by the U.S. toward agreeing to denominate bonds in foreign currency should be treated as an act of treason. Such a move provides cover for the "lawful" enslavement of the U.S. populus. I do not believe they would stand for it. It would be an act of desperation, and would rightly be interpreted as an act unworthy of a "reserve currency". Not a grey swan IMO, but genuine suppoku.
Britain is attempting to force Iceland to pay off "icesave" accounts after Kaupthung, Landsbanki and Glitnir defaulted on massive savings accounts balances held by British citizens. I can easily see our bought-and-paid-for "elected representatives" passing via treaty some such measure at some point in the U.S.'s future, putting citizens on the hook to toil away to pay off foreign-denominated bonds in a depreciated U.S. currency.
The assumption that there will be a currency crises in the USA is false. Ben have proven himself that when push to shove he will defend the dollar. He defended the dollar last year when it almost goes pass the finial support level by cutting off liquidity. This drove the stock market to the ground and stabilized the dollar. He has shown once again last month by stopping QE to defend the dollar. The Fed will take whatever is needed to insure that the dollar will not drop pass the last support level.
To have a strong military complex that export weapons, that country needs to involve in many wars. Not one but many. The USA has been in constant wars since WWII. Not a decade has passed without some kind of conflict that requires US military. Of course the US doesn’t call it war anymore, just intervention.
Japanese government play a large roll by buying overpriced military hardware from Japanese military industry.
Japan has not been at war since WWII. It has lost all military knowledge. It relies on US companies and US military to supply that knowledge. Japanese military complex is at a disadvantage compare to the USA and Russia. They will find few buyers because their home grown weapons aren’t what Armies around the world needs. The weapons that can be sold have always been with the help of the USA.
Second war doesn’t provide economic stability. It doesn’t produce it consume. The reason why the USA came out of the depression was almost every nation was bomb to the Stone Age. We were the only one left that has the factories to produce products.
I personally expect one more deliberate crash whose purpose will be to save the Treasury market, not the dollar (though they are joined at the hip, aren't they?). Such a crash would be easy to achieve, and would serve many purposes:
It's a short-term solution, but everything they've been doing thus far has only been about delaying the inevitable.
I agree this is a tool in the arsenal. I am not sure its use is inevitable, just possible. Are the buyers of Ts (domestic audience) really the same investors who try to beat the casino we call the equity markets? Do they flip back and forth, manic-depressive style, between lunatic-risk and the Ultimate Safe Investment? I see the equity markets as populated only by Steroid-Pumped Banks and their backstopped, no risk here surrogates, urged on or even funded by the Treasury, with the SEC and the FDIC in the grandstands cheering them on, in an effort to prop up equity values for any number of reasons. They are not really buyers of Ts to begin with are they? Do buyers of Ts watch the action in the equity pits and occasionally decide that the very few days down are signals to buy Ts? Makes no sense.
March 18 (the start of QE) is commonly cited as the start of the 2009 Bull, perhaps September 22 (if I have that date right of the next FOMC meeting) will be the start of the Return of the Bear, as confirming QE's end. Would at least have some sort of symmetry to it, some kind of internal logic. Refreshing.
Trouble is QE as far as agency securities is still ongoing. And the back door of trading Ts for agency securities to FCBs and other offshore buyers is still open and busy. A swap of a non-guaranteed security for one that is, made possible by printing press dollars.
The value of the USD/JPY rests exclusively in the hands of millions of daytrading Japanese housewives in Tokyo...
LOL.....
missed your daily yesterday Robo...hope it's back soon! I see you are quoted in the LA Times!
link?
Mrs. Watanabe, as you might easily guess, is the Jane Smith of Japan (even though there are probably more Mrs. Suzuki’s and Mrs. Tanaka’s). Watanabe-san had a love affair with New Zealand a few years back, though it ended sadly. Still, NZ probably treated her better than Mr. Watanabe, who although he can no longer afford, nor will his company pay, for the home grown hostess bar talent, has opted for the cheaper import model. Meishi, furo, neru!
'Watanabe' is a common surname in Japan. It's a bit like attributing a major trend occurring within the American housewife population as a 'Mrs. Jones' phenomenon.
Watanabe is a common Japanese name. It's like Mrs. Smith.
I lived in Yokosuka for a few years and many Japanese wives of US service men would routinely play the currency trade between Yen and Dollars since they had easy access to Navy Federal Credit Union on base and their local banks out in town. Never underestimate the skill of a Japanese housewife in an arbitrage trade...
Exceedingly interesting piece, PM. I'll be watching the election closely now, as well as any moves by the new administration if the opposition party prevails. Appreciate the work!
Excellent work Mayhem.
Mish is right. Iceland never got close to hyperinflation.
Japan military industry isn’t a threat to anybody at the current state. They lost all military knowledge due to the fact they haven’t been in a war since the end of WWII. They relied and work with the USA to compensate the lack of war knowledge.
Yeah I thought all that Japan's military was capable of creating were those mobile satellite dish looking things that spit those lightning rays that never seem to be able to phaze Godzilla, or any of the other critters that stomp Tokyo periodically. Makes you wonder why they even make them.
I'll take a stab at this. Mish was right. In the last 5 months all Mish has done is complain about how unfair the FRB is and how co's that were 'doomed' (to borrow a term) were 'saved' and how that just isn't fair. While this is a hard concept to get past I think we can see the level of intervention the FRB, TSRY, and Congress are willing to go to will crush the what remains of a deflationist portfolio. To his credit, Mish doesn't really call shorts mostly longs and he did say buy gold at ~890; very recently he also said oil was overpriced at 64 $/bbl. I take his blog with a grain of salt.
Oddly enough Mish's arch nemesis Schiff is looking more and more correct recently as virtually all EM stocks are rising above and beyond their US counterparts (dollar devaluation in action). Perhaps Mish will again be correct and there will be another wave of deleveraging and dollar strength but not now and not soon, at least not while Bernanke is pulling the levers.
Interesting, you say Iceland never got close to hyperinflation, this claim is largely indeterminate because Iceland is not out of their crisis and did experience an ~200% increase in imported goods. Their crisis is not over and one cannot yet say what their course will be, hyperinflation is doubtful but there are experiencing severe self inflicted inflation.
I'm not up on Japans military but I can say this much, neither you nor I know the full extent to which they have developed arms or military technology. I think it is fair to assume that they do have one of the most advanced robotics industries in the world (read drone capabilities) and a massive industrial base from which to build what they want.
OJ out. a glass a day keeps the doctor away.