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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.
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LOL! And Benny boy is the most decent and honest person I know. Mish and his deflation addicted follwers seem to be really losing it right now. Now don't get me wrong, I read Mish too - I just don't agree with many of his theses.
There are no jobs (although schools are allowed to defraud with false employment stats).
good articles; good articles 4 slow news day ..http://www..
hat tip: finance news & finance opinions
Why are we not having infaltion with trillion pumping into the economy? Why has gold been dropping. Shouldn't gold be over $1500 when the dollar is this weak? Explain that.
The gold markets are tiny compared to the stock and especially bond markets. They are easily "managed" and will continue to be so until the exchanges run out of physical. Central banks are now net buyers. Production is not keeping pace with demand.
There is no need to rehash the case for gold manipulation here.
Give me a date when we will see inflation. Give me a date or shut up.
The PPI is over -6 and dropping fast.
Mish and other deflationist are right because WE ARE ALREADY in a DEFLATIONAL SPRIAL. What do we get with zero percent interest rate, dropping dollar, and trillion pump into the market? Deflation, it keep on going like there is no tomorrow.
Unfortunately, my friend, you are using the government's bogus numbers. We are not experiencing a negative PPI. When the numbers are recalculated using the more honest formula from back in 1980, we already have about 5-6% inflation, even in the midst of this depression. What will happen when we finally recover? Hyperinflation!
Ok, Remember, remember, the fifth of November.
I am Chumbawamba.
You are surely not referring to the FUDGED statistics put out by our CRIMINAL government?
Give me a date when we will see inflation. Give me a date or shut up.
I can only respond to that by saying it is a stupid and pointless charge. Besides, I am not an inflationist. It is not inflation I foresee, but rather a currency crisis, set off by a sovereign default (real or anticipated), inducing a hyperinflationary loss of purchasing power by the USD. I expect this to happen first in a stepwise manner in response to some event, then a slow and relentless downward trend that will seem like it will never end.
Of course the central banks want to manage the gold market; they know that gold is a competing currency that threatens to reveal their fiat currencies as the failures they are. But they are running out of willingness to manage it as they are themselves (finally) beggining to sense the outcome now carved in stone. There simply isn't enough real capital to reinflate the world's economies, and the only answer is the printing press.
What happens if they fail to reinflate? Interest on the national debt will continually rise, as tax revenues fall. Raising taxes only slows the economy that much quicker. Soon we will find ourselves borrowing just to pay interest, and the debt trap is sprung. Default follows quickly for a "reserve currency".
This is the thing deflationists like Mish fail to answer. If there is a deflationary spiral, how to we pay off the debt? How do we pay to keep the dependency class fed, clothed, housed, etc? WHat happens if we don't? Tell me the end game of your deflationary spiral; I won't even demand a date.
I think you are talking about loss of faith based inflation instead of monetary supply. In other words people just stop believing in the money supply and inflate it by trying to make overcharging a type of saving. Since the system beats you like a slave for saving. Sounds reasonable especially with such a huge portion of baby boomers reaching near retirment ages with little savings. A kind of hyper active speculation robin hood system.
Do you actually think that we are going to pay off the debt?
Mish's end game is 10 years of Japan style deflation follwed by hyperinflation.
Like SWRichmond I am not an "inflationist" or a "deflationist", but a realist who tries to see things as they are instead of putting them into convenient little boxes and labels. I admit many people will (and are) try to pay off their loans and/or save money due to future uncertainity - this results in people hoarding paper money and hence in deflationary pressure - but at the same time people will not sit by idly when they see the Fed debauching their money openly and will dishoard the paper mountains in favor of something more stable - such as PM's. In the CONfidence game that a fiat money system is, perception can become reality pretty quickly.
the consumer is not seeing the helicopter's effects. Prices are more or less stable...the big test for the consumer side of the inflation vs deflation argument will be how well the announced higher beer prices hold up through football season. If we see Inbev and Miller switching back to the lower price range then it should be pretty safe to say that the inflation we are seeing now is only temporary and will not manifest itself in the real world.
Longer term is a different conversation altogether of course.
Agree. No point being religious about any of this (or anything). Follow the facts and they currently point at deflation with massive global inflation sometime downstream if Bernanke succeeds in 'saving' the financial system.
Stay liquid.
Ditto; why is this so hard to see & comprehend? Too obvious, perhaps?
I claimed currency crisis not hyperinflation. Nonlinear dynamics are not scalable anyway. You are familiar with the fat tail?
The point is not the threat that the Japanese military industry poses. The threat is the global military-industrial complex and a global 'guns and butter' economy. What happens when global unemployment in the First World continues to increase past 30%? Do you think government are not cynical enough to start another war? Are you watching what is happening in Pakistan? The constant attacks with the Predator drones? August was the deadliest month for US forces in Afghanistan to date.
Thanks. Corrected.
I think this chart is really interesting
Looks like M3 might go negative sometime in 2010 -- assuming the trend keeps up.
Thank you. However, I prefer the term "Pink Flamingo".
Thanks Mayhem. I admit that I don't follow Japan as closely as I should, particularly given their current political dynamic. I appreciate this very nice summary. I'm going to read the COFR piece now (love the "global paymasters"!!!!)
Excellent piece. Completely agree that it is VERY germane to the U.S. deflation/hyperinflation discussion.
The immediate impact of yen-denominated treasuries 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.
Related to this topic: has anyone heard ANYTHING about the supposed Japanese men caught on the Italian border with $135 billion in (fake?) U.S. bonds?
I can find no follow up on this story after a Treasury official, after looking at pictures online, said they are "clearly fake" in mid-June. NOTHING after that.
Even if they were fake, shouldn't there at least be stories about the Secret Service pursuing the largest counterfeiting attempt in history? Shouldn't there be some word of who these Japanese men were? Where they are now? Some news about them... I don't know... maybe going to JAIL?
Nothing. No news. No word on who these men were. Surely, the Italians at least copied their passports before letting them wander off.
I can't escape the conclusion that bonds were REAL. Now where were they going and why?
I am reminded of Lula in Brazil and how the markets sold off in fear that he would be Hugo Chavez II. Look what happened instead.
Brazilian exchanges rallied and those who bought in made a hefty profit. We could see a repeat of that situation.