Former IMF Chief Economist Admits Japan's "Endgame" Scenario Is Now In Play

Tyler Durden's picture

Back in October 2014, just after the BOJ drastically expanded its QE operation, we warned that the biggest risk facing the BOJ (and the ECB, and the Fed, and all other central banks actively soaking up securities from the open market) was a lack of monetizable supply. We cited Takuji Okubo, chief economist at Japan Macro Advisors in Tokyo, who said that at the scale of its current debt monetization, the BOJ could end up owning half of the JGB market by as early as in 2018. He added that "The BOJ is basically declaring that Japan will need to fix its long-term problems by 2018, or risk becoming a failed nation."

 

Which is why 17 months ago we predicted that, contrary to expectations of even more QE from Kuroda, we said "the BOJ will not boost QE, and if anything will have no choice but to start tapering it down - just like the Fed did when its interventions created the current illiquidity in the US govt market - especially since liquidity in the Japanese government market is now non-existent and getting worse by the day."

As part of our conclusion, we said we do not "expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016's business."

Since then, the forecast has panned out largely as expected: both the ECB and BOJ, finding themselves collateral constrained, were forced to expand into other, even more unconventional methods of easing, whether it be NIRP in the case of the BOJ, or the outright purchases of corporate bonds as the ECB did a month ago.

* * *

Then, in September of 2015, the IMF realized the severity of what our forecast meant for Japan, and released a working paper with the non-pretentious title "Portfolio Rebalancing in Japan; Constraints and Implications for Quantitative Easing", which however had momentous implications because it was a replica of what we had said a year earlier.

In the paper, the IMF said that the Bank of Japan may need to reduce the pace of its bond purchases in a few years due to a shortage of sellers. The paper predicted a world in which, just as we cautioned, "the BoJ may need to taper its JGB purchases in 2017 or 2018, given collateral needs of banks, asset-liability management constraints of insurers, and announced asset allocation targets of major pension funds... there is likely to be a “minimum” level of demand for JGBs from banks, pension funds, and insurance companies due to collateral needs, asset allocation targets, and asset-liability management (ALM) requirements. As such, the sustainability of the BoJ's current pace of JGB purchases may become an issue."

The paper's shocking punchline was how Japan would survive this inevitable phase shift, or as we rhetorically asked, what happens when the regime shifts from the current buying phase to its inverse: The IMF response: "As this limit approaches and once the BoJ starts to exit, the market could move from a situation of shortage to one with excess supply. The term premium could jump depending on whether the BoJ shrinks its balance sheet and on the fiscal deficit over the medium term.

When considering that by 2018 the BOJ market will have become the world's most illiquid (as the BOJ will hold 60% or more of all issues), the IMF's final warning is that "such a change in market conditions could trigger the potential for abrupt jumps in yields."

Or as we put last September, "at that moment the BOJ will finally lose control."

We even timed it: "But before we get to the QE endgame, we first need to get the interim point: the one where first the markets and then the media realizes that the BOJ - the one central banks whose bank monetization is keeping the world's asset levels afloat now that the ECB has admitted it is having "problems" finding sellers - will have no choice but to taper, with all the associated downstream effects on domestic and global asset prices.

It's all downhill from there, and not just for Japan but all other "safe collateral" monetizing central banks, which explains the real reason the Fed is in a rush to hike: so it can at least engage in some more QE when every other central bank fails.

 

But there's no rush: remember to give the market and the media the usual 6-9 month head start to grasp the significance of all of the above. 

Sure enough, it took the market about 6 months to finally grasp that the BOJ is out of ammo: the result has been a dramatic surge in the Yen coupled with a plunge in the Nikkei, meanwhile Kuroda is left scratching his head what he can do in a world in which the G-20 have specifically prohibited him from easing and making the dollar stronger as that will lead to a return of China's weak currency-driven, capital outflow crisis. 

As for our other forecast from October 2014 in which we said "expect the media to grasp the profound implications of this analysis not only for the BOJ but for all other central banks: we expect this to be summer of 2016's business" this too was quite prescient.  Because while summer is just around the corner, earlier today the mainstream media, in this case the Telegraph's Ambrose Evans-Pritchard, finally caught up with a piece titled: "Olivier Blanchard eyes ugly 'end game' for Japan on debt spiral." In it he cites none other than the IMF's former chief economist, Olivier Blanchard who left the IMF just at the time the IMF's study from last September was made public. 

The content of Pritchard's piece should be familiar to anyone who has followed our musings on this topic for the past two years.

In it, he says that "Japan is heading for a full-blown solvency crisis as the country runs out of local investors and may ultimately be forced to inflate away its debt in a desperate end-game, one of the world’s most influential economists has warned."

From the article:

Olivier Blanchard, former chief economist at the International Monetary Fund, said zero interest rates have disguised the underlying danger posed by Japan’s public debt, likely to reach 250pc of GDP this year and spiralling upwards on an unsustainable trajectory.

 

Prof Blanchard said the Japanese treasury will have to tap foreign funds to plug the gap and this will prove far more costly, threatening to bring the long-feared funding crisis to a head.  

 

“If and when US hedge funds become the marginal Japanese debt, they are going to ask for a substantial spread,” he told the Telegraph, speaking at the Ambrosetti forum of world policy-makers on Lake Como.

 

Analysts say this would transform the country’s debt dynamics and kill the illusion of solvency, possibly in a sudden, non-linear fashion.

That moment in which the illusion dies, is precisely the phase shift which we descibed in September as the moment "market conditions could trigger the potential for abrupt jumps in yields."

Said otherwise, from plummeting deflation Japan would be faced with soaring yields and hyperinflation as the last recourse buyer, the BOJ, is swept aside.

Prof Blanchard, now at the Peterson Institute in Washington, said the Bank of Japan will come under mounting political pressure to fund the budget directly, at which point the country risks lurching from deflation to an inflationary denouement.

 

“One day the BoJ may well get a call from the finance ministry saying please think about us – it is a life or death question - and keep rates at zero for a bit longer,” he said.

Pritchard here catches up to what we said in October of 2014, namely that the "BoJ is  soaking up the entire budget deficit under Govenror Haruhiko Kuroda as he pursues quantitative easing a l’outrance." Incidentally, this is the same Pritchard who several years ago was lauding Japan's QE

He next points out something we have also warned about for year: "the central bank owned 34.5pc of the Japanese government bond market as of February, and this is expected to reach 50pc by 2017."

This is us circa last September.

What comes next is the scary part, the part we have been focusing on for years:

Prof Blanchard did not elaborate on the implications of Japan’s woes for the global financial system, but they would surely be dramatic and there are growing fears that this could happen within five years. Japan is still the world’s third largest economy by far. It is also the global laboratory for an ageing crisis that the rest of us will face to varying degrees.

 

Once markets begin to suspect that Tokyo is deliberately engineering an escape from its $10 trillion public debt trap by means of an inflationary ‘stealth default’, matters could spin out of control quickly.

 

It might lead to an abrupt reappraisal of sovereign debt risk in other parts of the world, especially in Europe with its own Japanese pathologies of low-growth and bad demographics. Roughly $7 trillion of debt is trading at negative yields worldwide, an accident waiting to happen for the bond market.

After Japan comes Europe:

Prof Blanchard said the risk for the eurozone is the election of populist “rogue governments” that let rip with spending in defiance of Brussels. “Investors would have serious thoughts about buying their sovereign bonds,” he said. The European Central Bank would be legally prohibited from activating its back-stop mechanism (OMT) to prevent yields soaring since these governments would not be in compliance with EU rules. “Some of them have very high debt and presumably would have to default,” he said.

Perhaps, or the ECB will simply unleash the first helicopter money if it can get over the loud German chorus of disagreement. Although once Europe launches Helicopter money, it will be promptly followed by the US as the global monetary devaluation round enters the final sprint. It is no coincidence that earlier today none other than Ben Bernanke admitted that "Helicopter Money May Be The Best Available Alternative."

What shape the final stand of failed monetary policy takes, is irrelevant. What is relevant, is that for the first time, not only is the Japanese doomsday scenario finally in the mainstream press, but it is acknowledged by none other than one of the Keynesian luminaries AEP is so impressed by:

Prof Blanchard is one of the world’s top theoretical economists over the last quarter century and might have won the Nobel Prize by now if he had not been cajoled into IMF service by his fellow Frenchman, Dominique Straus-Kahn.

 

He transformed the IMF into a brain-trust of progressive ‘Keynesian’ thinking, much to the fury of Berlin. A leaked document from the German finance ministry said the institution should be renamed the ‘Inflation Maximizing Fund’.

Evans-Pritchard's conclusion:

"Professor Blanchard has had the last laugh on that joke. Seven years after the Lehman crisis the eurozone is in outright deflation and yields on 10-year German Bunds are trading at an historic low 0.11pc.  Touché."

Actually let's check back in another 7 years, because now that even one of the world's "top theoretical economists" acknowledges that the endgame for trillions in debt ends in a hyperinflationary supernova, and not a deflationary black hole, all those years of sliding interest rates around the globe are about to be flipped on their head. At that point it will be the Germans who are laughing last.

Sadly, there will be nothing else to laugh about as the Keynesian "progressive thinkers" will have finally reached the inevitable and disastrous "end-game" of their failed religion.

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CHoward's picture

It's been so damn long - I don't even remember what the hell happened to Japan that got them in this condition in the first place.  Anyone?

doggis's picture

YEAH - IT WAS THE OVERPRODUCTION OF "RAMEN" NOODLES......

chicaboomboom's picture

All CENTRAL BANKS are the same. No wonder Money itself has become the Problem >> https://goo.gl/IoiSjv

JamesBond's picture

The Japanese Government embassed socialism and Keynesian financial theory at the same time. Some say it was hoisted upon them by the USA. NO matter the root, get ready for a 10000 yen bowl of ramen.

Jb

Bunghole's picture

Tyler,

You should have extended the Central Bank to % of GDP chart to before QE so we can see the start of our demise.

Saddam Miser's picture

Global Totalitarianism is what they need. Force Earth constituents to buy your bonds. Problem solved. The ultimate endgame. Except for when the nukes fly.. I guess theres a couple steps more to the endgame.

SafelyGraze's picture

I made these same predictions ten years ago. not that it did me any good.

hugs,
hugh hendry 

Haus-Targaryen's picture

Normally EAP is quite on point.  I do however disagree with them on the following;

--- 

Prof Blanchard said the risk for the eurozone is the election of populist “rogue governments” that let rip with spending in defiance of Brussels. “Investors would have serious thoughts about buying their sovereign bonds,” he said. The European Central Bank would be legally prohibited from activating its back-stop mechanism (OMT) to prevent yields soaring since these governments would not be in compliance with EU rules. “Some of them have very high debt and presumably would have to default,” he said.

---

While in theory, the ECB would be prevented from outright being the purchaser of last resort by its rules, the entire "European" project has demonstrated over and over and over again a kind of "to Hell with the rules" attitude, when the future of the project comes into question.  

For us to think that the ECB would start magically following its own rules, if by doing so it would result in its own "evaporation", it naive.  The ECB would say "fuck it, we're doing it ... if you don't like it .... sue me." 

At which point lawsuits will start flying all over the place, and without a doubt, the ECJ would rubber stamp this, because, when the existence of the "European Experiment" comes into question, the rules mean nothing.  

 

Ghordius's picture

and a good morning to you, Haus-Targaryen

Ambrose Evans-Pritchard? still more interested in feeding his readers their usual dosis of "the EUR is baaaad", in my opinion. pick any of his articles written a few years ago, and compare

and you have your head too full of that strange "European Experiment" meme, again only my opinion

fact is that the ECB is still somehow managing to give what is their only mandate: price stability

my question to you is: do you approve of that mandate? do you think a German Mark would be better... in providing price stability? I sincerely doubt it

what is the FED doing with it's biggest Primary Dealer, the People's Bank of China? reverse repos, in the tune of frigging 100 billion per month. that's the equivalent of a "China-only.... USD QE". and nobody dares even mentioning it

look, it really comes all back to price stability and trade. reflect how you really stand about those two issues, then in europe they are important, way more then the talk about other extreme measures

we have to trade in order to keep our heads out of the water. all the rest... is luxuries we don't have

samjam7's picture

Fact is that with debt monetization the ECB has already left its mandate Ghordius, no matter how much you want to deny it but introducing QE meant breaking the laws of its mandate. Or have you forgotten the reaction of your own countrymen when Draghi revealed his plans? 

Also your constant whim at agressive investors attacking the German Mark are getting a bit old, how badly did Germany fare under the Mark Regime? How bad was the all reputable Bundesbank at defending that currency?

If you really think the ECB will be able to maintain 'price stability' once the above scenario unfolds in Japan, without having to resort to more extreme measures outside of legality you are mighty naive. Just because the ECB is 'currently' managing doesn't mean it will do so in the future. Look the BOJ is 'currently' also managing well...

Yes we have to trade, there was trade with different currencies in Europe also, and there will still be trade once the EURO is part on the pile of European history. Another 'dark chapter' to be forgotten! 

Ghordius's picture

"Fact is that with debt monetization the ECB has already left its mandate"

nope. the mandate is price stability. don't confuse the mandate with the regulatory framework, or the legality of the actions of the ECB

it's Haus here that believes that the DM would have a nice sunny day in this environment. you live in Switzerland, don't you? what is the SNB doing? do you remember when the SNB parked the Swiss Frank in the anchoring shadow of the EUR?

fact is that Switzerland is now having a mild deflation... while the SNB is practically buying whatever has not been bolted down, including Apple stocks. do you deny that?

fact is that the Swiss Franc can do things that a medium size currency might find impossible

fact is that not every country in europe has the top-notch economy of Switzerland capable of taking deflation in a stride. and even Switzerland is somewhat hurting a bit

fact is that the problem today is not defending a currency. it's about coping with the others trashing theirs

at the end, when the EUR has finished it's usefulness - which is contingent with a different monetary environment then now - well, there are 19 national currencies sleeping under the hood of the EUR. ready to be deployed inside days

until then... they have to wait for the right moment. which isn't this year

Haus-Targaryen's picture

I think that a DM/NEURO/THALER would do great, and the trick to economic prosperity is a STRONG currency with BORDER CONTROLS & a system of tariffs.

The idea that a weak currency is good only makes sense in;

1) Free trade zone with other currencies

--AND--

2) Non-premium goods.

If a weak currency was the key to prosperity then Venezuela would be the most prosperous country in the world right now & we'd all be learning Swahili so we could do business in Zimbabwe.  

The other thing, is while value added inside a zone with a stronger currency would make the produce more expensive, imports of raw materials and energy become less expensive.  A benefit often overlooked by Euro fanatics & Keynesians alike.   

Ghordius's picture

how do your propose to convince the German economy about those... American recipies of tariffs? what do you do if the result is... trade wars? the very last thing europeans want?

note that we are getting a lot of flak for the "sanctions on Russia". note that the EU is currently embroiled in a incipient trade war with China over steel

I am a fan of ZH, but no, ZH does not show the full picture of what is happening. no source alone can, really

you are advocating strong policies. of the... "I don't care about what those wogs think" kind. perhaps in the US people think that they are fine. perhaps... the world might disabuse them of that notion

do you have full control over those supply lines of energy and raw materials, btw? in order to import cheaply, you need secure supply lines

Haus-Targaryen's picture

So they might have tariffs in return.  I am fine with this.  You do logically know that you can have tariffs without having a trade war.  

Tariffs that are punitive lead to a trade war.  Tariffs that are there to protect domestic indsutry don't.   

Ghordius's picture

meawhile, having a bigger trade zone carries more weight, in those things. it makes it easier to talk softly... because the stick is bigger

one of the reasons why your "the EU is good, the EUR is good, just break them up" is a no-go, for me.  I love... soft talk

we might get lucky and witness how the UK fares with China when out of the EU. I expect moar red carpets for Xi, then after all, the UK does not trade much. it... is all about FIRE

samjam7's picture

Ok I agree, it was a bad formulation. It should have been 'In order to achieve its mandate it broke with its regulatory framework'. Still this doesn't make the ECB's action any more legal. Maybe slightly more justifiable but that's about it.

You are comparing two different things now. The Swiss franc is in trouble for being 'too valuable' and I'm not denying any of it, neither the difficult measures the SNB had to implement which of course, I'm not at all happy about, nor the fact that the franc was anchored to the EUR for a few years.

But this was not due to 'speculators' from Wall Street, which you like to single out as one of the prime reasons for having the Euro. It is only due to the existance of the Euro that the Swiss economy is in such a difficult situation now. If it was just the Lira and the French Franc devaluing we would still have a relatively strong German Mark, Austrian Shilling and Dutch guilder. Switzerland has dealt with such situations many times before and coped relatively well. 

It never had to deal with such a strong currency vs. its major trading partner, all the while this trading partner didn't even have a high inflation or was suffering from a recession. 

You see now how the problem is not speculators across the Atlantic but a failed common currency.

Ghordius's picture

+1, even I don't agree with many things you are saying

note that it's not "speculators across the Atlantic"...only. Chinese, Russians and half of the developing world, practically everybody that has a few funds to spare are piling them somewhere

the unverifyible rumours are that half of the CHF 1'000 notes and EUR 500 notes are in the hands of Russians and Chinese private hands, for example

it's easy to talk about "rah, rah speculators"... or dismiss this talk. but I always suspected that the FX trading system is completely corrupted, and up to now, the scandals that are slowly surfacing are making my former suspicions sound naive in their scope. remember the Libor scandal, recently?

meanwhile... what is really "failed" about the EUR? most criticism in the last years was that it was "too hard", and it came from the "leftist spenders"

Haus-Targaryen's picture

Ghordo, 

You buy this "price stability" meme hook, line & sinker if you think this hokus-pokus version of the CPI as calculated here in Rainbow land is objective.  While it is a more honest measure of economic activity than in the USSA -- its still a joke of a barometer.  

The problem with the "price stability" meme in Europe is the logical next clause in any sentence discussing "price stability."  The next logical clause is obviously "over a XXX time frame."  

If they *really* cared about "price stability" their event horizon would be decades, and not quarters as it is right now.  If they cared about price stability, the would not be injecting billions of EUR per month into the economy, let the bad investments get written off (because QE is an attempt to maintain the status quo of mis-allocated capital by means of preventing the already mis-allocated capital from being properly allocated by mis-allocating more capital) & aim for price stability over a longer event horizon.  

Regrettably, "price stability" in the EUR's eyes has turned into "preserving the monetary union, to Hell with price stability (over the long term)."  In history, injecting massive amounts of newly created "money" into the system always, always, always, always ends the same way.  E.g., the exact opposite of price stability.  

GDP is merely M2 x V.  Right now V is in the crapper, and M2 is through the roof.  When the velocity of money picks up again (as it will) you will have the end of price stability, as the solvency of government won't allow for the destruction of excess money supply via higher interest rates. 

samjam7's picture

It always comes down to preserving the status quo, that is because the elite profits mostly from the status quo, which is why they are elite to begin with. Regardless of how beneficial a system may be to its pepole. Look at how Merkel is undermining Germany's free speech laws by tatcitly accepting Erdogan's lawsuit against Böhmermann. It is all done so her stupid Migrant-Crisis plan with Turkey doesn't break down, so her EU project may surivive a little longer. 
All in the name of preserving the status quo. And the same will be true when the moment comes to try and safe Deutsche Bank or to safe member countries from soaring yields! The EU always stood above the common good of its citizens!

Ghordius's picture

if Böhmermann was saying the same things he said about Erdogan about me, I would drag him to court. and win

meanwhile, there is an article of German law that says that foreign heads of state are protected by the same libel laws as citizens

I'm for sure not a fan of Erdogan. but... well, Böhmermann would have been better adviced to be more critical and... less of an asshole

a hint: you don't win against assholes by fighting them with assholeries. you just put yourself on their level by that

Ghordius's picture

"While it is a more honest measure of economic activity than in the USSA -- its still a joke of a barometer"

well, the only really serious CPI would be a personal one, tailor made to what your personal non-discretionary spending is

the 19 eurozone countries have each one with energy and food included. and energy is down, "thanks" to the energy price wars we are witnessing

"let the bad investments get written off". sounds... good. problem is... are you still a German nationalist? because if you do that... would you mind Chinese, Americans and even Russians buying off practically every asset they could?

that's what "monetary pressure" does, you know? when Japan was at it's height of "monetary and asset price pressure", it started to buy off California, piece after piece, until nationalists in the US Congress started to put punitive laws on that stuff. after all, the garden of the Emperor in Tokyo was valued as much as the whole of California RE. until Japan deflated, that is, and entered what is called "the lost decades"

nope. it's somewhat ok to have this kind of talks in the US, where there is a certain insulation from the rest of the world. another luxury we don't have

context. you can advocate a policy in europe, but you can not forget what would happen in relation with the rest of the world. not here

I am not happy with this EUR-QE, mind. but I sincerely do not like the currently proposed alternatives to it, and even less alternatives that are based on a world that does not exist

Haus-Targaryen's picture

This is yet another benefit of having a STRONG currency coupled with asset write-downs.  

You're entire economic outlook is continent upon the free movment of capital in a single currency zone.  Write off all these funny mythical "on paper only" investments, bring back a strong (or series of strong) currencies to Northern Europe, and what you'll have is northern Europeans buying off hung chunks of the rest of the world, and not the other way around.  

Ghordius's picture

and you think we'd be... allowed to do that? Japan wasn't, in the US. do you want a huge european intervention army and navy to enforce that?

Haus-Targaryen's picture

No, I am not talking about writing down asset prices in Japan, and you know that.  I am talking about it here in Rainbow land.  

If "Europe" would be allowed to do that ... IDK, likely not, but you'd have to ask its handlers in DC that.  

Ghordius's picture

lol. from my perspective, I have to handle American biases when it's about those "handlers in DC"...

... and I have to handle American biases when I chat on ZH with you

sometimes, I see little difference. all very busy rearranging the furniture here. whatever we do... there is always a brigher, more American idea about it

and when it's not an American idea, there is a Russian one. from disintegrate the EU to integrate into the EurAsian Union

oh, well, that's the price for it

Haus-Targaryen's picture

Whomever wants to integrate into a EurAsian Union is a fucking moron. 

Ghordius's picture

that's the alternative proposed by Putin. whatever people say or write about him, he is a stateman, and statemen propose alternatives. workable alternatives

what's the matter... from your perspective? one year ago I had to hold the differences between the east and the west of europe literally under your nose

TeraByte's picture

Good morning to you too. Are you a firm believer in a central planned economy. Soviet did not go belly up. Greece, Italy and Portugal are not going to follow suit, because they can be printed out from their dire fundamentals. What about encouraging fruits of the Chavesian model expected to run an inflation surpassing 700% this year. When you manipulate something and it does not collapse immediately you become easily lulled by a delusion this will never happen. The Soviet cycle was three generations, but today such cycles are as short as survival in IT business.

Ghordius's picture

I am a firm believer in a coordinated reaction to the central planned experiments being done... elsewhere

1971 I was shocked. since then, I advocated for a... european backup plan for the enventual end-game. that's the EUR, and it is working as designed

1971 I forecasted that since a fiat currency has an average lifespan of 40 to 70 years, the troubles would begin around 2011 to 2041

up to now, nobody has delivered any alternative to me that looks like it has any chance. just talk like "you believe in central planned"

are you going to provide me with "honest money"? can you? has "honest money"... any chance, at the moment? no

Haus-Targaryen's picture

"1971 I was shocked. since then, I advocated for a... european backup plan for the enventual end-game. that's the EUR, and it is working as designed"

...working as designed...

Yes, its failing as it was designed to, and to "save" the money, they'll propose a federation.  Working as designed indeed. 

samjam7's picture

Very good point. I am convinced the Euro is a project designed to fail. I am sure you are familiar with 'the rotten heart of Europe'. If Ghordius says there are 'no alternatives' he starkly reminds me of the current leader of his country which also likes to say 'there are no alternatives'. 

 

Haus-Targaryen's picture

The alternative is the restoration of the nation-state as sovereign, and perhaps a 2 or 3 zone European Union.  

Baltic/Alpine Union

Latin Union

Slavic Union

 

Ghordius's picture

so you are proposing "insularity-like" sovereignty... while at the same time proposing three clubs of sovereigns instead of one?

Haus-Targaryen's picture

I have never proposed everyone going back to their own little bubble.  Places like Sweden, Denmark & the Netherlands simply don't have the firepower or cash to defend their currencies from attack.  

I am a HUGE fan of the idea of the European Union, and I am a HUGE fan of the idea of a European Monetary Union.  The problem I have with them is they have group too many people together who are too fundamentally different from one another in their spending, saving & political habits to share sovereignty and a currency effectively.  

So a free trade zone & benefit entitlement between Germany and Denmark.  Awesome.  I am a huge fan.  Free trade and benefit entitlement between Germany & Bulgaria.  No, definitely not. 

Germany & Sweden sharing a currency?  Awesome.  Germany and Portugal sharing a currency?  No, definitely not.  

But this conversation we have had over and over and over again.  You still think dramatically different people grouped by geography and religion share enough in common to become one country, and I disagree.  

Ghordius's picture

"You still think dramatically different people grouped by geography and religion share enough in common to become one country... "

no, I don't. and I have to repeat and repeat and repeat that to you

those "fundamental differences" are quantifiable, when it comes to budgets. that's where the rubber hits the road. cue in the EU Fiscal Compact

Haus-Targaryen's picture

Que my question ... does said "fiscal compact" benefit everyone, just certain groups and would everyone agree that it benefits them from their perspective?  

Compare, for example, FPÖ's goals and ideals with PODEMOS.  Can these people BOTH get their way inside said Fiscal Compact?

The answer is quite obviously, no.  

Ghordius's picture

and that's the reason why Podemos is at loggerheads with Ciudanos, and they can't form a coalition. which will lead to new elections in Spain

possibly with PP winning, this time, or having a coalition with parties that are more compatible

Withdrawn Sanction's picture

The shortage of collateral cant be a good thing for the carry trade, but rising rates will absolutely devastate them.  

You have to feel sorry for the Japanese.  They've put up w/more than 2 decades of misguided monetary policy.  How much freaking evidence is required before they change course?   What a freaking mess. 

Withdrawn Sanction's picture

"Money itself has become the Problem"

Remember, for CBs money is a liability.  No One not anyone can borrow their way to prosperity.  Some people and institutions have bigger borrowing capacities than others, but big is not the same thing as infinite.  

decon's picture

Inflation/deflation are monetary processes.  Hyperinflation is the psychological event that follows.  It'll be like flipping a light switch when it happens.

JamesBond's picture

If Obama and Yellen just agreed to /let it ride/ then expect to see Japan and China go toe to toe in a currency war. The USA dollar will not come out unscaved. Inflation will rage in the states as well.

J S Bach's picture

"It's been so damn long - I don't even remember what the hell happened to Japan that got them in this condition in the first place.  Anyone?"

Ummm... maybe it was borrowing and spending a debt-based fiat currency well above and beyond their ability to ultimately pay the counterfeiters off?

(Actually, by definition, it can NEVER be paid off.  Thus, their plight is the scenario awaiting all of our sucker nations.)

nmewn's picture

I don't trust that guy, he's an eeebil smoker, all smokers are eeebil. I saw it in a movie ;-)

thesheet's picture

"It's been so damn long - I don't even remember what the hell happened to Japan that got them in this condition in the first place.  Anyone?"

 

Their economy rose to great heights because of clear fundamentals.  Low wages and high quality products after support from the states following ww2 created an economic miracle that morphed into a huge bubble. Capital flowed in from around the world. Japan in the 60's was like China was in the 00's.

In the 80's, the real estate value of the grounds of the emperors palace in Tokyo was worth more than all the land of California it was said. https://news.google.com/newspapers?nid=2519&dat=19910404&id=86xdAAAAIBAJ...   sorry for the long link, but here's a newspaper clipping about what they think it was worth 260 billion dollars for 284 acres. 70,000 per sq ft back then! NUTS. I wonder what property in Monaco and other high-priced places fetches for now? 

The bubble popped and they tried everything in their "toolbox" to get out of it, but it hasn't and won't work.

That's my understanding of events anyways. 

 

beemasters's picture

They are probably fortunate to have survived this long because their debt is largely internal. The Japanese are huge savers. They are practically living off their own savings so to speak.

samjam7's picture

Their government is living off their pension fund money. We will see a lot of old age poverty and 1-2 children having to care for two ageing parents whose pensions all but evaporated...good luck to those who didn't create their offspring of which there are many!

i_call_you_my_base's picture

This is a good documentary on the matter:

https://www.youtube.com/watch?v=p5Ac7ap_MAY

Princes of the Yen

___________'s picture

"I don't even remember what the hell happened to Japan that got them in this condition in the first place"

 

its called signing capitulation in 1946

Money Boo Boo's picture

which led to the overproduction of Here Kitty Dildos that eventually spawned Dick Cheney from a semen drainage ditch in South Sudan.