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Bond Wars: Chinese Advisor Calls For Japanese Bond Dump
Earlier today we casually wondered whether the US stands to lose more by supporting China or Japan in their escalating diplomatic spat, considering the threat of a US Treasury sell off is certainly not negligible, a dilemma complicated by the fact that as today's TIC data indicated both nations own almost the same amount of US paper, just over $1.1 trillion. In a stunning turn of events, it appears that China has taken our thought experiment a step further and as the Telegraph's Ambrose Evans-Pritchard reports, based on a recommendation by Jin Baisong from the Chinese Academy of International Trade (a branch of the commerce ministry) China is actively considering "using its power as Japan’s biggest creditor with $230bn (£141bn) of bonds to "impose sanctions on Japan in the most effective manner" and bring Tokyo’s festering fiscal crisis to a head." I.e., dump Japan's bonds en masse.
Should this stunning recommendation be enacted, not only would it be the first time in world history that insurmountable credit is used as a weapon of retaliation, it would mark a clear phase transition in the evolution of modern warfare: from outright military incursions, to FX wars, to trade wars, culminating with "bond wars" which could in the span of minutes cripple the entire Japanese fiscal house of cards still standing solely due to the myth that unserviceable debt can be pushed off into perpetuity (as previously discussed here).
Not needing further explanation is the reality that should China commence a wholesale Japanese bond dump, it may well lead to that long anticipated Japanese bond market collapse, as creditor after creditor proceeds to sell into a market in which the BOJ is the buyer of only resort in the best case, and into a bidless market in the worst.
The immediate outcome would be soaring inflation as the BOJ is forced to monetize debt for dear life, buying up first hundreds of billions, then trillions in the secondary market to avoid a complete rout, matched by trillions of reserves created out of thin air which may or may not be halted by the Japanese deflationary gate, and which most certainly could waterfall into the economy especially if Japanese citizens take this as an all clear signal that the Japanese economy is about to be crippled in all out economic warfare with the most dangerous such opponent, and one which just defected from the "global insolvent creditor" game of Mutual Assured Destruction.
Further complicating things is that Japan has no clear means of retaliation: it owns no Chinese bonds of its own it can dump as a containment measure. Instead, Japan is at best left with the threat of damages incurred on the Chinese economy should Japan be lost as a trading parting. It appears, however, that to China such a gambit is no longer a major concern:
Mr Jin said China can afford to sacrifice its “low-value-added” exports to Japan at a small cost. By contrast, Japan relies on Chinese demand to keep its economy afloat and stave off “irreversible” decline.
“It’s clear that China can deal a heavy blow to the Japanese economy without hurting itself too much,” he said. It is unclear whether he was speaking with the full backing of the Politburo or whether sales of Japanese debt would do much damage. The Bank of Japan could counter the move with bond purchases. Any weakening of the yen would be welcome.
Yes, but any offsetting Japanese hyperinflation would not, which is precisely what would happen if after 30+ years of dormancy the Japanese bond vigilantes were woken up by none other than a cuddly Panda bear with very murderous intentions.
Ironically, this terminal bond war escalation would also mean that Japan's last ditch alternative is to threaten the US with dumping America's bonds in turn if the US i) does not step up on behalf of Japan and ii) if Japan is forced to promptly convert debt from one denomination into another. The fallout effect would be most dramatic.
It is unclear if China will proceed with this "scorched bond" step: should this happen there is likely no turning back as it would force a market test of the entire developed world. And as our readers know all too well, the entire developed world is insolvent, and the only reason why it has perpetuated the illustion that all is well, is because being a closed system, nobody has the incentive to defect. Until now that is, when suddenly over a piece of rock in the East China Sea, China may find itself pulling the pin on the global debt grenade.
And even if this is not the final denouement, the market appears to already be pricing in several not much more favorable outcomes:
Markets are already starting to price in an arms race in Asia. Shares of China’s North Navigation Control Technology, which makes missile systems, have jumped 30pc in recent days.
China is becoming self-sufficient in defence. It was the world’s biggest net importer of weapons six years ago. It fell to fourth place last year.
Japan is at the other extreme. An official report this year – “A Strategy for Survival” – said Japan’s spending on its “Self-Defence Force” had shrunk by 4pc in 10 years. It called for “urgent” action to rebuild the country’s military.
One thing here is certain: Japan picked on the wrong country when two weeks ago it "purchased" the disputed Senkaku Islands. If it thought that China would just forgive and forget with a wink, it was dead wrong.
It now has several two options: undo all that has happened in the past fortnight, in the process suffering tremendous diplomatic humiliation, leaving Senkaku in the "no man's land" where they belong, or push on, and suffer the consequences. And the consequences for the country represented by the question market in the chart below, would be tragically severe, as would they for the entire "developed", insolvent and daisy-chained world.
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Shhhhh
They'll hear us and come for the oil, gold, silver, timber, uranium, diamonds, water, and fat chicks.
Ok, well they can have the fat chicks.
This actually is great. Japan "bought" islands with money it just imagineers. So dump their bonds. This is the perfect response to their action. Peaceful and effective. Do it.
This is much better than harming innocent people or creating a trade sanction. Just stick it to their government.
This is where the rubber meets the road on the fact that Ben Bernanke has been and is a national security risk.
Hey, but don't worry about it...because when the secondary effect of the bond war is US T bills collapsing in price, Joe "top tick" Teranova over at the BlowHorn [CNBC] will announce that a rotation out of bonds and into Apple has begun...and that it's all good.
test run for US-China conflict
We are not talking Korea or Vietnam. We are talking about the 2nd and 3rd largest economies locking horns. This is so poetic. Charles Darwin would be proud.
Just cut off ag exports to China. Sucks not being able to feed and water your peasants.
Let 'em fight it out with Pakistan and India over that diminishing Hindu Kush runoff water.
If we cut off ag exports to China, then what would our population eat for dinner tomorrow night?
Have you ANY clue as to the amount of food in OUR groceries that comes from China?
Yeah, cut 'em off, that would work out GREAT for our food budgets.
Drought, increased ethanol mandate and then stop China from processing for us.
Enjoy your $50 frozen dinner entree next year.
Fresh produce, fresh meat, fresh dairy do not come from China. Processed rat bits in preserved food, maybe. F them. If they wish to threaten economics as means of war, I would suggest they have a lot more to lose than the West.
For starters, tit for tat would be to cut off ag exports to them; default on agencies -- it was always b.s. government took the GSE's into the fold and made good on their debts just like they were government (taxpayer) guaranteed...when people were getting higher rates of interest on GSE debt exactly because they did NOT have a government guarantee. If they wanted a government guarantee they could've bought (lower yielding) treasuries. Bailing out the GSE's was primarily a U.S. taxpayer bailout of China, in the new disimproved world of no bondholder to take a loss on any risk assets. Back to main point after that side trip rant about the GSE's: default on all treasuries held by China (and non-redeemable to any subsequent purchaser of those bonds); likewise, Japan default on all of its bonds held by China; add China to the trade embargo economic sanction list, (mercantilist economies literally depend on selling to the outside world). Yeah, last part would hurt a lot of companies supplied out of China but would certainly open a demand gap to be filled by other/new American, European and Japanese enterprise.
Sick and tired of warmongers. Also sick and tired of all the undeserved hype and glorification of China, a communist, crony-capitalist system of fraudsters and thieves, (certainly no better than our own crony-capitalists) that purportedly will either SAVE the world or is A GIANT that one must be ever fearful of failing to kowtow to. Huh? Give me a friggin break!
Those islands were apparently privately owned by persons/entities who considered them part of Japan and were, for all practical purposes, under authority of Japan for many, many years. Those private owners chose to sell them to Japan. Without knowing intricate details, they appear, on their face, to belong to Japan. What is absolutely wrong is China whipping its people into a frenzy of outrage and hatred to be publicly displayed against the Japanese, (while tearing up their own neighborhoods of course), then further coming up with the b.s. to start making economic threats as a tool of "battle".
Did I say F them? Well, F them.
That is why there is probably more to this than meets the eye. China might be ready to let its currency float, and this is part of the roll out.
B..b...b...but Tyler said it was the Japanese who were picking on the Chinese and has been repeating that line for a week. Surely someone of his (their) stature in the world of international diplomacy couldn't be wrong. It must be the evil, warmongering ghosts of Japan marching from the grave in lockstep to crush wittle Chinaws daisy chain of peace they're draping around the world. Ditto the militaristic ghosts of Imperial Tibet, Taiwan, the Philippines, Vietnam, the Pacifists of the Gandhi Nebula and the Yarn People of Nylar-4.
Time for little Timmy Geithner to fly over to Japan and offer his guidance?
Nippon should just repudiate that debt. Egan-Jones approves.
Apparently only 5% of JGB are owned by non-Japanese. Repudiating Chinese held debt would probably make them sell faster to Japanese citizens as they are so Xenophobic.
Only 93 days til December 21....my, how time flies.
Me thinks Rainman go fishin tomorrow.
"Should this stunning recommendation be enacted, not only would it be the first time in world history that insurmountable credit is used as a weapon of retaliation, it would mark a clear phase transition in the evolution of modern warfare: from outright military incursions, to FX wars, to trade wars, culminating with "bond wars" which could in the span of minutes cripple the entire Japanese fiscal house of cards still standing solely due to the myth that unserviceable debt can be pushed off into perpetuity (as previously discussed here)."
Tyler,
if you wrote this I would think you would take it a step beyond..why? Basically no bond investor is now safe..just the threat alone regardless if it has the backing of the China's government, means it is a strategic option that could be used globally..The cat is out of the bag...
In the old days, you used to buy states like alaska (from russia US$7.2m) and lousiana (from france for US$15m) or fight a war (california). I dare say the islands in dispute are worth about as much now and have undiscovered mineral wealth of the odd billion or 20.
The Chinese polit bureau are probably desperate to keep their own population distracted from the economic meltdown.
Amazing how they are showing their cards to the rest of the world; first stirring up the masses causing them to burn anything that's Japanese and now unveiling the Chinese financial warfare capability.
Just replace Japan by USA/European/Russian/Anything and even a blind man can see where this is going...
You can't replace Japan with Russia, because Russia has virtually no public debt. Bond war, trade war, land war, Russia wins.
Is this bullish for TMV?
As if.
Payback time...1937, bitchez!!!
all i see is a lot of yak. are they chinese, or mongolian?
Hmmm... Perhaps a game of global thermobondular war?
The west is badly in need of a a financial collapse, but they do not want to be blamed for it. As they engineered the 2008 collapse but the engineers got blamed for it, they do not want to make the same mistake now.
What to do? Try to lure China into something stupid, so China will be blamed for the engineered collapse. I guess Japan volunteered.
The Fed did as told. Open Ended QE means that it can be stopped at any time.
China has not swallowed the bait yet. Let's see. It's a chess game.
It's a chess game and America is, typically, playing "Go Fish."
pump and dump or dump and pump, countries are like to many hens in the hen house just itching for a fight! invest in bullets!
Orchestrated "muslim outrage"
Orchestrated "territorial disputes"
Orchestrated "incursions of sovereign territory"
Orchestrated "economic and financial threats"
You are witnessing the start of WW3. Its gonna be a dozy.
"Our plan to Rule the World is shaping up!"
"Cue the Puppetz!"
----TPTB
Japan could simply declare the value of the Chinese bonds to be nil, or attach other conditions to them (in war, the rules change!). The Chinese are far and away the largest holders of JGB's. Japan owns most of its own debt, so there is no chance of a tsunami of foreign countries dumping their JGB's. I would say the chance of this happening and the risk is zero.
Perhaps China is trying to prevent us from launching attacks in the ME? Next up will be Russia sending more "engineers" to Syria and perhaps to Iran? How big a war can we fight? Will our traditional allies back us up? I'm smelling Nuclear here and thinking about my 12 day old adorable grandson. Imagine, about a thousand PTB making decisions that could wipe out half the population of the Earth. God, if there is one, help us!
There is an out here though. We could just stop the shit! Start thinking about our own country! Bring the troops home from everywhere, circle the wagons, secure the borders, and let all nations know, you hit us and we'll nuke you to extinction!
Wonder why our idiots in DC are so clueless.
Russian ships heading toward Hokkaido ? Cool!
Why not grab some land and join the fun !
@Getting Old says, "...Wonder why our idiots in DC are so clueless..."
Funny, I no longer wonder that, because it occurs to me they are not.
The problem is that you still view DC through the lens of thinking they want to uphold our way of life and Constitution. ALL evidence points to the fact that that is the last thing on their minds, or during their votes. There is no way a group of lawyers is that "clueless."
What we see is EXACTLY what they wanted, voted for, made.
They just haven't told the sheeple yet, cause we couldn't handle the truth.
I now return you to your illusions.
Qe-4 Ben monetizes Chinas, "portfolio of JGB's" ./sarc
Who ever wrote that China can dump Japanese or US bond is ultra retarded. Let see. What happens if China dump bonds? In return gets YEN deposit in some Japan bank,again same exposure. The only way they can sum zero is trough trade.
Dump bonds, get yen, buy gold. next please.
First thing that came to mind, when I read the thread header on the ZH homepage was, dont worry - "Bennie along with the fully fueled inkjets and stacked face-cords will buy them".
Look at the first post on this thread !!
I Love it !! ;-)
No ticky no laundry - oh and today special "cumofsomeyoungguy" enjoy muddafucka
Meanwhile, the U.S. media orgasms over Robama's remarks about the good Muslims, Palestinians, and the SNAP card victums.
Feeding the sheeple.
What is a "us media?"
I cut them off 15 years ago.
Right about the time they invented internetz.
Sun Tzu.....
Gesundheit
JOhn Belushi
http://www.youtube.com/watch?v=RxcKe-ggBm0
Dear China,
We have humbly reconsidered our decision to claim your islands. Please have them and enjoy all they have to offer.
Love,
Japan
and after crushing Japan....the Chinese turn to the US and tell us hands off syria and iran or else...back Japan and we sell your bonds. We sure have put ourselves in harms way. What a bunch of idiots we have running this country.
Think of how Japan was in the 1930's. That's how China is now. They have over a billion people. It's easier to send them to war than have civil unrest.
Nah. Bond dumping on that scale would set off a worldwide chain reaction which would damage China as much as Japan.
Mutually assured economic collapse.
When economic collapse is virtually ensured, why not make it mutual?
And he who has anything left, especially while supplying the world antibiotics, insulin and computer chips, well now.
Even in mutual destruction somebody is left with more, hence, "wins."
Japan has one weapon against China. All it has to do is have another nuclear power plant explode when the wind is blowing the right way.
Thats happening already with the meltdowns that are taking place as we type and the Japanese can't stop it. This is all going unreported. Even if China takes Japan, they can't stop it. We can't stop it. Nobody can stop it.
Wish I "could down arrow" you. Painfully agree...it's in runaway.
I take it they gave up? No concrete poured on top?
Hmmm, it'll melt thru the other side of the world.
So, TPTB found a way to thin us out again.
I have an urge for iodine....
The left way.
lower left......... still laughing
Hmmm bond war, trade war...
Though apparently, if this happened to the US it wouldn't matter - according to the Pentagon
"China’s U.S. Debt Holdings Aren’t Threat, Pentagon Says"
http://www.bloomberg.com/news/2012-09-11/china-s-u-s-debt-holdings-aren-...
The misery of the Japanese people....they have Tokyo's right wing mayor, Ishihara (among others) to thank:
Ishihara, a rightwing populist who has never shied away from provoking the Chinese, raised the idea of buying the islands from their private owners during a trip to Washington this week.
"Tokyo will protect the Senkaku Islands," he said in a speech to the Heritage Foundation, a conservative thinktank. "Why would any country have a problem with that?"
He said the presence of Chinese fishery patrol boats in the area was tantamount to a "declaration of war" against Japan.
http://www.guardian.co.uk/world/2012/apr/19/tokyo-governor-senkaku-islan...
Though a fascinating possibility, this proposition is shrill and hysterical even by ZH standards. Why would China destroy the Japanese bond-market, which would domino straight back into China. China's elite are cosy and well to do. Living the good life. Why give it all up?
...when you have to shoot, shoot, don't talk. [/tuco]
Because it's all falling apart slowly and the elites need somebody to point the finger at. It makes it easier for nations to distract their people with a boogie man when events are spiraling out of their control.
Chicom government is feeding its people negative propaganda about Japan to distract them from the hard landing, poverty and unemployment they have coming. Unfortunately, the resultant nationalist fervor seems to have taken hold hard. China looks set to erupt and the nationalism could take on a life all its own, sending China down the path to war. They are foolish to play with this kind of fire. Nobody wins in war. Hopefully, cooler heads will prevail.
Bang Dai Ho: Me like play bondage! But trust Bang... is more fun game if S, not M.
Benny Bernanke sucks in all bonds and garbage CDSs. The US federal Reserve is like a bond vacuum cleaner. Infinite printing machine.
China has become the Japan of the 1930's
The Chinese leadership fueled anti-Japanese rhetoric back in '07-'08, and it almost got out of hand. The real reason then was the same as now - to distract the populace from the real problems at home. As long as the Politburo can whip up nationalist sentiments, the Politburo survives. Jin Baisong's recommendation is just some more sabre-rattling, with no real teeth, as Pretorian hints at above. The $SSEC is down about 60% since '08, the people need to be defused, so get them exercized against a foreign devil.
China has always been antgonistic toward its neighbors. Throughout SE Asia the Chinese government and mainland Chinese citizens are disliked. There are ongoing disputes with Korea, Japan, the Philippines, Vietnam, Laos, India and Mongolia.
Remember all this when someone suggests that the remnimbi become the reserve currency.
I may have to learn how to make shoes out of used tires after all................
...and decorative lighting!
hey tyler, did you address this? we have been believing china has been cutting down on treasuries and buying gold....................
http://www.bloomberg.com/news/2012-09-18/china-resumed-buying-treasuries-in-july-as-trade-surplus-widened.html
I guess China's given up on the idea of eventually hosting the world's reserve currency, 'cause if they are willing to go econo-nuclear over a handful of glorified sandbars... well, good luck getting anyone to trust you enough to run the whole show!
The US knew what it was like to deal with China when it fought North Korea in the 1950s.
China has all of the current nuclear weapons and stealh technology. Chinese nationals have been working in US defense contractors,
Chicoms already came and went.
Now Mexican Nationals are doing our secret defense. Cheaper.
The Chinese are acting quite drunk and belligerant lately.
Even their leader-in-waiting looks like a slant-eyed Yeltsin.
Well. I'd say the end of the world as we knew it seems to be proceeding nicely. Only thing missing now is a zombie virus outbreak and I think we will have arrived!
Zombie 108. Fun flick.
In The Great Wal Mart of China We Trust
...blaa haa haa haaa,
Is $230bn really big enough?
Japan may be a waning power, but it is still the world's third largest economy. And there is massive store of private-sector wealth.
Japan is so overleveraged, yes.
Not to worry cause the BOJ can sop up any and all liquiditee at the drop of a hat
Actually inducing an economic opponent to dump your debt at a huge discount is a pretty crafty idea, especially if you have the capacity to buy the debt back at a huge discount and monetize the difference.
Japan as a nation may have a lot of debt but the individual citizenry are quite good savers.
So the aluminum one yen coins from my collection will soon be worth many, many MORE yen?
Hmmmm no. The yen will crash. Selling = losing in value.
"Hmmmm no. The yen will crash. Selling = losing in value."
But the aluminum content will still have the same value. So yes, the melt value in yen of the coin will some day exceed its face value in yen of the coin, given that the BoJ prints to infinity like every other country with fiat currency
The irony might be that there simply isn't as much oil as people suppose. So now we get to see how much things really cost, once labour is factored in.
wow. in the article, the big O the Chicoms are raising their flag under looks like it's morphing into an O'Bama logo!
Could it be a secret signal?
I dare you!
Signed,
Kyle Bass, Jr.
Give me a break. Money talks and bullshit walks. Chinks ain't dumping shit except for a whole bunch of blather lately about what they could do but won't.
The solution is to start a war under the following agreed-upon rules: No soldier under the age of 60 may fight the battles. That should fix the demographic problems and engineers will get a kick adding wheelchair ramps, oxygen bottles, and IV poles to advanced fighter aircraft.
Number 2 luncheon special come with flied lice or flee yen bond.
"China commence a wholesale Japanese bond dump"
And...where does China dump the money to? To Chinese domestic market to blow up domestic inflation rate? Massively increase their holdoing of Euro bonds?
... It's easily said than done.
Follow the illustion
China seems to have a long term plan to destroy themselves. They've been at it for a thousand years, and shooting themselves in the foot has been their traditional test of marksmanship. This would be no different.
When someone announces a massive dump of an asset, what happens to the bid? Don't know, right? Why? Because nobody is stupid enough to do such a thing. Well, maybe not until now. So certain JGB CUSIPS go bidless or suffer selective default. Who wins that?
Then there's trade. China has a solution here. The Government simply buys all the goods originally destined for Japan. That changes little other than the current account, since few if any Chinese manufacturers actually make money from ongoing business anyway. For years Chinese "profits" have been all about domestic RE gains.
And what if Japan sells Chinese assets and moves everything to Indonesia or Malaysia or Thailand? How many soon-to-be-more angry peasants/workers hit the UE line where there is only a line and no actual benefits? The Government may have lit the fires of rage now directed at Japan, but those fires could easily burn out of control and come back and nip the CP on its arse.
Oh yea, and if China demonstrated its willingness to do a JGB dump, folks at Treasury would simply make sure they had an up-to-date list of all Chinese held USTs by CUSIP number.
The yuan is backed by yen and dollars, and those currencies have been converted to JGBs and USTs. Wipe out the bonds and mostly what China has remaining (since CP officials have taken out everything of value that wasn't nailed down) is 1.3 billion comrades with a very bad attitude.
See that big toe? Ready. Aim. FIRE!
Sounds more like a Brain Dump to me....
Based on all the crap I read, someone really high up wants this shit to nd in WWWIII. The big F.U. war if not the war to end all mankind. WTF...or am I missing something.
"Japan picked on the wrong country when two weeks ago it "purchased" the disputed Senkaku Islands. If it thought that China would just forgive and forget with a wink, it was dead wrong."
The irony being that Japan was trying to put out the fire by "purchasing" the islands and assuring that nobody did anything with them, rather than let Tokyo's rabid governor buy the islands and attempt to develop them into something usable.
Typical passive-aggressive bullshit from Japan. If the country wasn't full of neo-nazis and actually abided by its treaties, this never would have been an issue in the first place.
lol japan full of nazis?
and what is china full of?
Just in:
*BoJ very aggressive, QE to expand by Y10-80 trln, CB doing all it can.
Goodbye japan, also goodbye HUGE chunk of Japan owed USTs.
Next to watch for is bonds issued by China/Japan to it's own citizens i.e war bonds.
It's on.
I buyed some silver in yen...
One other thing here is certain --- if you think a nation that purchases its own territory from its legal owner, who is a citizen of that country, is "picking on another country", stick to the markets and instead of giving us opinions on situations that you have no understanding of.
And i mean no understanding. You even had to get cute with the quotes around purchased.
If you want to actually learn something, click on the link to my user name, scroll down past the Japanese text on the left sidebar, click on the China category, and read for a couple of hours.
But if you're one of those guys who doesn't care about fact or principle and is just interested in making money off the guy you think has the bigger stick, don't bother.
I've been saying the same thing and getting junked for it. There's one particular Tyler who seems to think that there's been this big global dispute going on regarding these islands rather than almost universal acceptance of Japan's claims by ALL except meek comments by Taiwan and a few hysterical rantings by China, who incidentally is also pressing a dozen other specious claimsaround it's borders.