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This Crisis Will Be Over 30 Times Bigger Than Greece
Japan has fueled much of this latest rally in stocks, driving the marketing first with promises of money printing by the Prime Minister in November 2012, and then a massive $1.2 trillion QE program announced by the Bank of Japan last month.
The result of this has been a collapse in the Yen and a 70%+ rally in the Nikkei in the last six months.
This has been the fundamental driver of this latest risk on rally. Remember that the US Federal Reserve has begun changing its language regarding QE and has even hinted at tapering QE before the year-end. So it’s the Bank of Japan who’s in the driver’s seat for asset prices today.
If Japan has been bad for the Yen and good for stocks… it’s been an absolute disaster for Japanese bonds. Since the Bank of Japan announced its latest QE program, Japanese Government bonds have triggered circuit breaks no less than four times due to incredible volatility.
And last week, they briefly violated their multi-year trendline.
Many investors are probably looking at this chart and thinking, “who cares what happens to Japanese bonds… why does a trendline violation matter here?”
First and foremost, Japan is the second largest bond market in the world. If Japan’s sovereign bonds continue to fall, pushing rates higher, then there has been a tectonic shift in the global financial system. Remember the impact that Greece had on asset prices? Greece’s bond market is less than 3% of Japan’s in size.
For multiple decades, Japanese bonds have been considered “risk free.” As a result of this, investors have been willing to lend money to Japan at extremely low rates. This has allowed Japan’s economy, the second largest in the world, to putter along marginally.
So if Japanese bonds begin to implode, this means that:
- The second largest bond market in the world is entering a bear market (along with commensurate liquidations and redemptions by institutional investors around the globe).
- The second largest economy in the world will collapse (along with the impact on global exports).
Both of these are truly epic problems for the financial system. But even worse than any of them is the following:
If Japan’s bond market implodes, then global Central Bank efforts to hold the system together will have proven a failure.
Japan is truly the leader amongst global Central Banks when it comes to progressive and accommodating policy. The Bank of Japan has kept interest rates at ZERO for nearly two decades. It’s also launched NINE QE plans adding up to an amount equal to nearly 25% of Japanese GDP. So far it’s managed to do this with minimal consequences.
Central Bankers around the world have monitored these efforts and believed that they can implement similar plans. So if Japan’s bond market begins to collapse, then it’s Game. Set. Match. for Central Banker policy. And what follows will make Lehman look like a joke.
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Best Regards
Graham Summers
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The Japanese just announced that they will restart seven of the shut down nuclear generators.
It is often mentioned that the Japanese government debt is held by the Japanese and that they will not respond to changes in yields and prices. That analysis may have had some merit several years ago, but is still suspect. Currently, since all major banks will be judged based upon the revised Basel agreements, the Japanese banks are very sensitive to price changes in their massive holdings of JGB. It will be those banks which trigger the avalanche of selling into a falling price market. It will eventually require the BOJ to buy even more massive quantities of the JGB, sending out even more massive volumes of Yen, accelerating the collapse in Yen value. A moth fart can possibly start the avalanche. There is nothing than can stop it until there is a new natural equilibrium.
I have a question...Japan doesn't have any natural resources. And they shut down their nuclear plants after Fukushima. Now, destroying their currency as they do, how on earth is that going to help Japan since they are importing pretty much everything? Wars have erupt when currencies devaluate to the point of destruction. People of Japan must feel sick looking at their purchasing power abroad plummeting.
Zerohedge is like a reality show for those in the know. "Economic Survivor" if you will.
Each week a new crisis to follow and mull over. Unlike those TV "reality" shows, this is real and important.
Going to be fun to watch this week's episode: Will this be the week Japan comes undone, or will it be Ireland, Berstank lies and spins again before the liars in Congress and the "IRS as Gestapo" sub-plot continues.
Now where's my popcorn and beer? hujel
More like Groundhog Day. SHTF .... tomorrow
are we there yet, i got to go to the bathroom
If Japanese bonds fall then the government will buy them cheaply with printed yen. The debt goes away. All the banksters are happy. The public is shafted. Any argument?
Just one small one: Is it even possible for a government to buy its own debt, effectively loaning itself money? Would not the Bank of Japan simply continue to buy government debt in this scenario?
I suppose it would be analogous to the Social Security Ponzi scheme we have going on over here, where the Treasury sells T-bills to SocSec for the promise of redemption later down the road. Or is it?
F*ck it. I need a drink.
Last time I heard....................Japanese citizens owned most of the bonds in their country............
They are self funded to the most part.............A crisis you are predicting is too amped up......
Scare a crow, not me..
Yep, because "money a nation owes its-self" doesn't count. Who cares that over 50% of current Japanese government revenues go to pay the just interest on the current debt at the ridiculously low rate of 1% - its okay if Bond rates double, or triple.. because then you can just borrow more to pay the interest that you can't pay .. and the Government controlled institutions will just buy more debt.
If you beleive that system is sustainable- isn't it wrong for Government to tax anyone? Why go through the expense and burden of taxes? After all the government can simply borrow its operating expenses 100%, and then pay them back with interest with still more borrowed money - with no ill effects whatever? And if you believe that works, I would like to have an open, limitless line of credit with you. Every time I am supposed to pay you back, you loan me the money that I owe you ( and some more, cause I still have living expenses) and I will pay you back with it. Private message me if you are interested. Oh, it doesn't work without a printing press? It won't work with one either.. it just goes on longer till a default happens - either via inflation, or via payments not made.
Of course the "we" in the statement, " Its money we owe oversevles" doesn't exist. Its individuals with savings, and individuals who have none, but get handouts from the government. Guess which group gets nothing in the end? Thats right - Both.
"We" will suffer together when "we" can't come up with the money to pay "us" - but you are right, Japan is self funded, as is the United States (World Reserve curency) Nothing bad will happen. Just keep going as you are. Nothing to worry about. Its not like currency collapses have ever happened before, in multiple places, since the begining of civilization.
They wont be able to self-fund when the GPIF is selling to finance pensions for the ever worsening demographics mix. And with a negative balance of payment, that leaves only foreigners to buy the JGBs, and they will require a much higher return than 0.7%.
Final option is the BoJ which could theoretically buy all the new issues of JGB's, but that will eventually result in hyper-inflation.
They are on the road to oblivion. Only remaining questions are: How long can they stall? And when do the capital markets call the bluff?
http://nipponmarketblog.wordpress.com/
There are so many ways for Japan to fail, it's just amazing that they're still kind of afloat, if you don't mind being irradiated and completely broke, dependent on the rest of the world for resources, and living in a society so dispirited they don't even have sex, let alone children.
On the other hand Phoenix Capital does nothing but flog end-of-the-world theories. There must be money in it somehow. In this little post, they claim that Japan is still the second largest economy, completely ignoring China, and the facrt that Japan is clearly on its way to falling out of the third slot. If they can't be bothered to get little details like that right, who is going to buy their bullshit?
Sorry to POP your Bond Bubble...............but your trade isn't called the Widow Maker for nothing............Don't underestimate the resolve of this and other governments..................
I understand, Kyle Bass and others have placed bets, and have great arguments for the collapse of society.... It all looks so terrible.....That's what they said in 2008..........Look where we are now..................
Armageddon will have to wait.............
Kyle's bet against the yen is looking pretty good right now.
"Sorry to POP your Bond Bubble".
This is not a matter of opinion. It is a matter of time. Of course - it could be a long time yet.
Resolve has nothing to do with it. If the government can't fund itself in the market, then it simply can't fund itself - no matter how much "resolve" it has.
In addition: The idea that something won't happen because it hasn't happened yet, must be close to the clearest non-argument I have ever seen.
A compelling argument can be made that, indeed, society (civilization) is collapsing. By way of reminder, the World Trade Center towers, quick as it was, did not collapse instantaneously.
Their bond market is not the problem. Fukushima is their major problem.
Bonds are one thing, the re-start of their nuke plants is something else.
So the BOJ will just buy the entire issue of bonds. Nothing to see here, move along.
Of course, if they do that, the exchange value of the currency could become extremely unstable.
Japanese bonds entering a bear market won't just be a question of global shifts in asset allocation vis-a-vis risk as dictated by Bernanke et al. If and when the (Government Pension Investment Fund) GPIF hits the sell button - something that will be dictated to it by demographics, and which is already happening - then rates will invariably push higher.
See this piece for some musings on this issue:
http://nipponmarketblog.wordpress.com/2013/05/13/gpif-tremors-in-the-jgb...
Death by 17 trillion samurai cuts...
If Japan goes... Not too many places to hide. Inflation? Deflation?
Gold should be good irrespetive of what happens in Japan.
But, could FOFOA's numbers re future price of physical gold make any sense?
"Gold Arithmetic"
http://tinyurl.com/ba7um78
As some one wrote a while back, "Financially, Japan is a bug in search of a windshield."
And from a macro-side, Japan is a nation trying to payback exorbinant be debt with a declining productive population.
So you're long on Nigeria?
I said "declining PRODUCTIVE population." Just because a population is increasing does not mean it is productive.
I believe it's robot population is still increasing.
So you're long on the U.S.?
The ONLY ones that care anymore are the ones who are trying to keep this system alive as it is now. I lost faith in this Bull Shit years ago. Let it go and FREE the Sheeple from Slavery. And we can have a remake of the movie "Escape from New York".
It will probably be more like The Stand.
I dunno. Seems like 29 times greater to me.
i looked for my calculator must be honest ...but what Graham's saying is this is gonna be BIG ....fucking BIG this time around another Govt of human scum blows up
better get used to it, we've been suffering Govt/poliitcians, Emporers, Royalty and the Church for over 2,000 years
maybe we never learn freedom works best
I can only hope.
Country is eat raw fish. Get sick and bloated. Surprise, surprise.
i heart boris
Spasibo! But other ZHer is down point arrow on Boris(: