Typing Out Aloud: Japan, the Yen and the "Coming" collapse


sqa

Village Scribe
Obviously, I'm typing this up on the back of the Bank of Japan's further Quantitative Easing this past Friday, but it got me thinking about what modern Central Banking is taking shape as, which produced a thought: While we know that a Central Bank's interest aligns with itself and the other Bankers (and not actually "for" the local economy), maybe we're missing too much how they've changed the "game" of currencies.

As much as the Fundamental Economics of International Trade are important, the Japanese may have found an end-around for their Government Debt in a way I don't think anyone is thinking about yet. I'll explain.

As the basic level, the Japanese government debt simply can't be paid back. It's been too big for a shrinking working age population that's been shrinking since around 1998. (Granted, if they'd stopped over-spending then, they'd not have this problem) As a result, the Bank of Japan owns more and more of the Government Debt. But here's the catch: what happens when the Bank of Japan owns *all* of the Government Debt?

The fact that effectively all Japanese Government Debt is owned by the Japanese has always made the debt problem a weird one. But it gets even weirder when the BoJ owns it all. The Japanese Bond Market has been effectively illiquid for ages. They're in the process of moving most of the government retirement systems out of J-Bonds, which has been read as a "last-ditch effort" but might be something different.

So, in 2019, if the Bank of Japan owns *all* outstanding Government of Japan debt, what happens when they default on it? While the assumption that it would make the Bank of Japan insolvent, here's where my point comes in: So long as the Bank of Japan can trade Yen for US Dollars (remember, same Central Banking Club), what does it matter? It's just a bunch of digits in an account.

Now, it might be hard for the government to issue new debt to the Japanese banks. And if you think that, you're also fooling yourself. The Japanese Banks *will* fall in line. It's the way they operate.

I'll have some follow up thoughts later, but any one else want to chime in?
 

sqa

Village Scribe
One smaller point: most of the damage would be done long before they get to the Default point. The economic havoc is already pretty clear.
 

fredfresh

Well-Known Member
Interesting.
I had similar thoughts in the past. It is also not limited to BOJ. Many CBs around the world have been on a shopping spree for not only Bonds, Currencies (to weaken their own), and more and more also stocks..
After a while I came to the conclusion, that the Centralbanks might simply turn into the bad banks of each country..

I guess we can all agree, that the much claimed "central bank independence" is a farce, and is everything but independent..right?

To think that the CBs already own a huge slice of the markets (and will own even more as time goes on) is just scary as hell to me.

If one thinks that CBs are controlled by the big banks, then that is one thing. Considering the influence CBs on politics, then this would strengthen my believe that we are living in global corporatism (fascism without the baggage).
If one believes that CBs are controlled by the state, and CBs own an ever growing junk of the market, then that would, by definition, imply a trend towards plain communism.
As usual, the truth will lay somewhere in the middle.. But the middle between Corporatism and Communism is not a very attractive place to be, in my opinion.
I know capitalism only from books I've read. While not perfect, I can only dream of it, and hope to one day experience capitalism and free markets first hand.
In recent years I find myself more and more often, questioning why I should continue the entrepreneurial path I have chosen to go. I have moved countries 3 times in the past 10 years (currently considering another move), only to encounter different shades of the same problem (overreaching government and regulations that squeeze the life out of me and any business opportunity) I do not want to cry around here too much.. But I watch the trend our countries are following with a very bad feeling in my stomach, and I fear for my kids' future. I am not Dr. Doom, but I can also not put my head in the sand and ignore what is going on. Personally I feel less and less wind in my sail, and I don't like that.

Interesting times..
 

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