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Japanese Ministry of Finance To Japanese Bondholders: You’re Screwed!
Wolf Richter www.testosteronepit.com
This has got to be the icing on the Japanese cake. The otherwise bland website of the Japanese Ministry of Finance, more specifically the FAQ page on government bonds, has been catapulted to stardom on Facebook and Twitter. Not in a good way. As you flip through the MoF’s website, page after page, you will mostly see zero Facebook likes and zero tweets. Social media and the MoF ignore each other.
But go to the FAQ page, skip down past the categories of Budget, Taxation, and Tariffs to item 4, Government bonds. Under the second group, skip past Tax questions for individuals, Miscellaneous (Is it a crime if I make a copy?), Price and yield questions, and Coupons to the infamous question 5: “In case Japan becomes insolvent, what will happen to government bonds?“
Tweeted 1,645 times, liked on Facebook 3,733 times!
The MoF website isn’t some blog to be ignored (at your own risk) but the official voice of the most important ministry of the most indebted country in the world, whose debt will reach 240% of GDP by the end of this fiscal year. The country borrows over 50% of every yen it spends, and it spends more every year. With no solution in sight. Other than more borrowing. Certainly not cutting the budget, which would be too painful. It wouldn’t be enough anyway. Even cutting the budget in half would leave a deficit. And the recently passed consumption tax increase? It will raise the tax from its current 5% to 8% in 2014 and to 10% in 2015, way too little to deal with the gigantic problem, and years too late. Yet it won’t kick in unless GDP grows at least 2% per year—which has practically no chance of happening.
No, there is no longer a good solution. And everyone knows it.
About 95% of Japan’s debt is held within Japan by government-owned institutions, the Bank of Japan, banks, companies, pension funds, and directly or indirectly by individuals. Hence the question—”In case Japan becomes insolvent, what will happen to government bonds?”—is of primordial importance to just about all Japanese adults.
The question and its answer weren’t decided by some underling. Each word was carefully weighed by experts in the highly hierarchical bureaucracy of the MoF. As these words were polished and examined for every nuance, they were passed up the ladder until they landed on the desk of an official at the very top who approved not only the wording, but also whether or not that question should even be on the website. And the official answer is:
“Rest assured that the Japanese government will redeem the bonds responsibly.”
Here is a screen shot of the question and answer:
“Rest assured!” How bondholders can possibly rest assured under these circumstances remains a mystery, in particular since the MoF then proceeds to tell them exactly how they will get kicked in the groin: bonds will be redeemed “responsibly.”
Not when they mature, but responsibly.
Thus, we have the MoF’s official action plan for the moment when the big S hits the fan, the moment when Japan with its declining wages and shrinking working-age population can no longer save enough to mop up all the government bonds necessary to keep the government afloat [read.... Japan’s Slow-Motion Tsunami].
A selective default. Bonds will retain their “value,” but the government won’t redeem them when they mature. It will redeem them in bits and pieces, stretched into all eternity, as it sees fit. You’ll die before you’ll see your money.
This is THE answer, the official answer we’ve been looking for all along, and now we find it on the MoF website where it would have remained hidden in plain sight had not some enraged Japanese spread the word via Twitter and Facebook.
And they filled the ether with caustic FB comments:
- “LOL!”
- “Isn’t it called ‘insolvent’ because you can’t pay?”
- “This is absolutely nothing but mocking the general public. How dare they say such gibberish!?”
- “Should be a joke.”
- “Isn’t it supposed to go, ‘Rest assured that the Japanese people will redeem the bonds responsibly?’“
- “Yeah, the only thing they could rely on is the people’s savings....”
When the legendary savings of the Japanese are drying up, as they’re in the process of doing, the word responsibly will take on a new meaning within the context of one of the greatest recent acts of governmental irresponsibility: creating that debt monster in the first place.
John Mauldin of Mauldin Economics sees similar issues in the EU and the US. The EU, he says, is only left with choices that are now between very bad and disastrous. In the US, he says, Republicans and Democrats will have to hold hands and walk off the cliff together. And he throws in an intriguing tax plan. Read the excellent interview.... John Mauldin's Prescription for Avoiding Economic Catastrophe.
And here is my first foray into Japan—a “funny as hell nonfiction book about wanderlust and traveling abroad,” a reader tweeted. Read the first few chapters for free.... BIG LIKE: CASCADE INTO AN ODYSSEY, at Amazon.
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You are confused. People are not lice, corporations are not people, money is not speech.
Do you realize how much corruption there is in politics?
Campaign ~lies~ or promises ("elect me and you will never see a tax hike, everything will be given to your on a silver platter and before it is over, I will walk on water for you") to get the vote - promises which will undermine and even destroy an economy because no man or woman has the balls to say to the people: "If you elect me, you will see a tax hike." Probably because they would not get elected (Read My Lips).
The wealthy are so concerned about every nicket and dime, they'll let their country collapse before allowing the money in their wallet be used to operate their on govt.
It's all a dog and pony show now. So fucked up is the whole globe that by the end, there will probably be a dramatic decrease in the population numbers.
Take a look at the obvious contempt being shown toward the common people in Japan who are being faced with watching their children being exposed to radioactive waste 24/7.
Politicians should be held accountable. They are in the leadership position and if they cannot lead without crippling their country, they should take a seat so someone else can.
But, as we all know, it's about riches. Politicians and their extended family/friends get quite wealthy while they stand on the stage. Regardless of the poor job they do.
Das gut, nein?
Maybe at that point farmland would replenish it's topsoil naturally (instead of the dust bowl the US is about to experience again), the underground aquefiers we're depleting will naturally replenish themselves, the Chinese would mine less of their mountainsides and forests, and parts of the Sahel might even grow back once the subsistance farming hut dwellers cut back on child production out of necessity.
Politicians get elected because they have enough money to hire polished marketers to craft good sound-bites and pay for them to be drilled into the dim minds of the sheep. Either that or they were able to obtain video of their opponents raping girl scouts. Very little that passes the air waves during an election has anything to do with real policy ideas, it would just confuse the sheep.
This "raping of girl scouts," were they wearing sailor uniforms, and were tentacles involved?
They will be cashing in the IO U'S
China and Japan Lead Foreign Buying of U.S. Treasury Debt in July
Think that's bad our government will give you the money back you had in an insured FDIC account in case of a collapse as soon as possible.
they'll all be dead from radiation soon anyway. that's the real tragedy, not bonds.
The government can claim any and all payment on their bonds shall be paid at Fukushima. 72 hour wait for payment and you must be there. If anyone wants to be paid, go get it.
And YET the Yen has appreciated SIGNIFICANTLY against most major competing currencies over the last decade, including the € & USD, bitchez.
Welcome to the Rabbit Hole where you already think you're on acid before you enter.
I love the acronym MoF.
Each time I read MoFos!
Google's translation of the answer is even better:
"Government bonds will be redeemed because the government is responsible for, please do not worry."
Very, very reassuring, I agree.
/s
My (more literal) translation is:
As for the government, it is holding the responsiblity for bond redemption. Therefore, please let your heart be honorably still.
This isn't how English speakers read this but this is how Japanese people hear it.
I found it curious that they would use the passive "don't worry/let your heart be still" rather than the much more common active "-shitekudasai."
That may be one reason so many Japanese people are (atypically) jumping all over it. It explicitly offers NO continued reassurance while SAYING it offers reassurance.
next stop USA. Bernanke . May he RIH
RIH ~~ Rest in Hopium*
*Hopium class enterprise
I don't understand this fixation ZH'ers (and lemmings) have with the idea of 'unsustainable debt'. All money is debt, is it not? If one dollar is created, and interest of say 5% is charged upon its creation, then you have an unsustainable debt. Namely $1.05 of a universe of $1.00 of money.
Why do you see a difference between borrowing a $1.00 for $1.05 ot 1 trillion for 1.05 trillion? Neither is real, nor "debt" at all. The dollar is an imaginary construct, and agreement between a person agreeing to be a creator of it and a person agreeing to be a borrower of it.
Why not just change the rules. They are completely fabricated from inception. It certainly doesn't have to end badly. Or continue at all in this silly constrict for that matter.
A genuine question. I guess I have been watching it all too long. It doesn't make sense at all to me anymore, why you see things this way.
Jballz, it is insulting to start a post comparing your reader to a lemming (and, correct me if I'm wrong, but you are a reader). In general you are correct, but my take is that money is the most amazing invention of all time, back when it was species (look it up). Now it's just gasping at it's death, it's continued use a carry over from the time it was real. This whole concept that we can willy nilly change the rules sounds benign, but this concept is the foundation of war.
Money is not "an imaginary construct". It is a store of value that represents the labor of the person who earns the money. I mow your lawn, you give me $40 for that labor. When Central Banks "change the rules" by debasing the currency, they are stealing the accumulated labor of those who hold the money. If they debase/steal enough, then people will no longer accept that form of money because it will no longer represent a store of value of their labor.
I agree with your premise but: "the dollar is an imaginary construct." Have you ever seen what happens when people's deepest held fanatisies are stripped from them? The result is dangerously unstable.
You also have to account for the fact that the wizards who put together the "imaginary construct" at Jekyll Island would rather bring the temple down on their heads (and yours) rather than give up the POWER that has been unknowingly loaned to them by people who hav bought into the dollar myth. Money is merely a means to power, and they will destroy it and you rather than give up a wit of power. If it was you and me and Ron Paul, we could fix this mess in a NY minute. These people don't want a fix. They want to shoot anyone who threatens the rules or the construct between the eyes.
RIH---is that Reside In Hoboken?
Hoboken?! Oooo, I'm dyin'!
Bugs Bunny, 1950. Right?
Yep!
Same thing?