Yeah I noticed this too. The Yen should be rallying, but it isn't. We may well have seen the end of the major Yen appreciation of the last few years. Given the high debt load, there's definitely a "tail risk" of a major depreciation at some point in the future. So IMO, long Yen is no longer a good play, and it may even be a short.
You are using an out of date browser. It may not display this or other websites correctly.
You should upgrade or use an alternative browser.
You should upgrade or use an alternative browser.
Japan Spirals into Bankruptcy?
- Thread starter observer67
- Start date
Yeah I noticed this too. The Yen should be rallying, but it isn't. We may well have seen the end of the major Yen appreciation of the last few years. Given the high debt load, there's definitely a "tail risk" of a major depreciation at some point in the future. So IMO, long Yen is no longer a good play, and it may even be a short.
Quote from Ghost of Cutten:
How are government like Greece and Ireland going to run even larger budget deficits though? They are already having problems just rolling over existing debt and are paying huge premiums to keep borrowing, despite having launched massive austerity programs. If it is this hard just to stay solvent with current debt in the face of aggressive spending cuts, what makes you think they could happily pump the deficit up to 15%, 20% without going bust? The markets will simply not lend at affordable rates, and they will be borrowing at 20%, 30%, 50%, 100% just like other defaulting nations before them (e.g. Argentina in 2000-2001, Russian in 1998), the interest required to service existing debt will reach a point of no return where the debt service payments exceed government cashflow and there is then no way to avoid default.
Having local fiat currency just transfers the default into a currency devaluation and losses via inflation.
The EMU should start a treasury department that would be capable of financing the budget deficits of countries like greece and portugal. Such an institution would then be the equivalent of a monetary sovereign. To such an institution cash flows are irrelevant as they create the tokens called "money". They create money as they spend it and they destroy it as they take it back in through taxation. What money remains in circulation (money supply) is the result of a deficit. Taxation under a fiat system, properly understood, is not for the generation of revenues but for the management of the money supply.
The austerity measures that are proposed for Ireland, Spain and Portugal will throw those countries into a deep cutting depression and as their GDP takes a hit their debt/gdp ratios will only increase. Increasing taxation and decreasing government spending will only reduce the money supply and worsen the problem, resulting in a deflationary vicious circle.
Lastly, I agree with you that a decrease in the value of a currency compared to other currencies is a real risk for investors. This does not fall under any conceivable definition of a bankruptcy however as the liabilities were expressed in that currency to begin with.
Quote from FerdinandAlx:
There have been no defaults of countries who's debts are denominated in a fiat currency they have sovereign control over.
There is no stronger form of "sovereign control" then being able to peg one's own currency, which renders your above claim unequivocally incorrect.
The only way this works is if the sovereign has no external trade and no external debt, a situation which doesn't exist.
Quote from Random.Capital:
There is no stronger form of "sovereign control" then being able to peg one's own currency, which renders your above claim unequivocally incorrect.
The only way this works is if the sovereign has no external trade and no external debt, a situation which doesn't exist.
Not true. To peg a currency is to surrender sovereign control of your currency to another nation. It introduces a foreign standard just like pegging a currency to the gold standard does. According to your trail of thought you might as well call the adoption of the gold standard an example of "sovereign control". That's alright, but doing so means you've not understood how I use the term sovereign control. To enforce sovereign control is to issue a fiat currency, to peg it is to surrender that control.
What I'm describing in this thread is how fiat currencies work, how they derive their value and why this means that governments can never go bankrupt on the debt that they issue in them. This is not ideal theory stuff, this is how it works on the operational level. The reason you and others can't wrap your head around it is because you're used to the type of thinking that makes sense for your personal finance or that would hold true under a gold standard. Fiat systems work differently for governments and there aren't alot of people that actually understand how it works. It's like Bernanke answering a question on 60 minutes about the bank bailout:
"(SCOTT PELLEY) Is that tax money that the Fed is spending?
(CHAIRMAN BERNANKE) Itâs not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank. So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed."
The way government finances work under a fiat system is that they mark up numbers in a spreadsheet when they spend and mark them down when they tax. They don't actually need the revenue that comes from taxes, they just mark down numbers as a way to control the money supply.
Right now we're at a cross roads: A lot of monetary and tax policies only make sense under a gold standard. Once politician start to understand the fiat system they'll recognize that the way governments spend and tax must be changed. Tax laws will be changed so that they may become an extension to monetary policy rather than an extension of revenue generation.
Quote from Ghost of Cutten:
False, there have been plenty of defaults of sovereign debt issued in fiat currencies.
Name one.
Quote from FerdinandAlx:
That's alright, but doing so means you've not understood how I use the term sovereign control.
You are using the term in a way that has no relation to the real world, effectively arguing that a person can fly by merely by changing the definition of gravity.
What I'm describing in this thread is how fiat currencies work, how they derive their value and why this means that governments can never go bankrupt on the debt that they issue in them.
Unfortunately, it is impossible to issue arbitrarily large amounts of debt "in them", again rendering your argument irrelevant to the real world.
Read my most a few times. I'm not playing word games or assigning arbitrary definitions. I give a clear reason why I treat "sovereign control" the way I do.
Governments with sovereign control of their currency do not issue debt to finance their operations. They don't need to. They issue debt to provide the private sector with a safe financial asset that can absorb the increased savings rate that stems from the government deficit spending. Issuing debt is a monetary measure, not a financing measure. Not alot of people knows this, but that's how it works in the real world.
Governments with sovereign control of their currency do not issue debt to finance their operations. They don't need to. They issue debt to provide the private sector with a safe financial asset that can absorb the increased savings rate that stems from the government deficit spending. Issuing debt is a monetary measure, not a financing measure. Not alot of people knows this, but that's how it works in the real world.
Quote from FerdinandAlx:
Governments with sovereign control of their currency do not issue debt to finance their operations.
Yes, I understood the first time. Even that definition - as disconnected as it is from the world we actually live in - is incomplete as you also have to eliminate all trade with external entities that do no use the same currency.
The bottom line is that your example has no relevance or meaning, as the assumptions and preconditions simply do not exist, and have never existed.
Ferdinand, here's how it works in the real world: economists and the media will come up with endless convoluted explanations for the economic policies which are most advantageous to the factions in power.
A little common sense, however, will tell you a few things. When debt or expenditures become unserviceable (for an individual or a country), it will first be dealt with by adding more debt. When there are no more lenders, the individual will go bankrupt but the govt will print it's own fiat money for direct expenditures or to lend to itself. This govt/central bank counterfeiting eventually creates inflation the same as any other counterfeiting. Usually there is a lag in the inflation since many people continue to foolishly hold bonds. Nonetheless it is a timebomb waiting to go off. Whether or not the govt defaults is irrelevant, they have defrauded their bond holders.
All of these debt bubbles and their economic rationalizations, are just a delay of the inevitable, largely for the benefit of the banking industry at the expense of the uninformed public.
A little common sense, however, will tell you a few things. When debt or expenditures become unserviceable (for an individual or a country), it will first be dealt with by adding more debt. When there are no more lenders, the individual will go bankrupt but the govt will print it's own fiat money for direct expenditures or to lend to itself. This govt/central bank counterfeiting eventually creates inflation the same as any other counterfeiting. Usually there is a lag in the inflation since many people continue to foolishly hold bonds. Nonetheless it is a timebomb waiting to go off. Whether or not the govt defaults is irrelevant, they have defrauded their bond holders.
All of these debt bubbles and their economic rationalizations, are just a delay of the inevitable, largely for the benefit of the banking industry at the expense of the uninformed public.
Quote from Random.Capital:
Yes, I understood the first time. Even that definition - as disconnected as it is from the world we actually live in - is incomplete as you also have to eliminate all trade with external entities that do no use the same currency.
The bottom line is that your example has no relevance or meaning, as the assumptions and preconditions simply do not exist, and have never existed.
Please explain why you think that all trade with external entities that do not use the same currency would have to be eliminated and I'll tell you where you go wrong.
Quote from lorax2013:
Ferdinand, here's how it works in the real world: economists and the media will come up with endless convoluted explanations for the economic policies which are most advantageous to the factions in power.
A little common sense, however, will tell you a few things. When debt or expenditures become unserviceable (for an individual or a country), it will first be dealt with by adding more debt. When there are no more lenders, the individual will go bankrupt but the govt will print it's own fiat money for direct expenditures or to lend to itself. This govt/central bank counterfeiting eventually creates inflation the same as any other counterfeiting. Usually there is a lag in the inflation since many people continue to foolishly hold bonds. Nonetheless it is a timebomb waiting to go off. Whether or not the govt defaults is irrelevant, they have defrauded their bond holders.
All of these debt bubbles and their economic rationalizations, are just a delay of the inevitable, largely for the benefit of the banking industry at the expense of the uninformed public.
You seem to be fixated on an outcome that you think is certain: inevitable hyperinflation. I've already explained why this won't be the case as hyperinflation is the result of a complete disintegration of government and not a result of monetary policy.
You also think that when the government expands the money supply this equates to counterfeiting. Well, I think that monetary policy should be based on engineering desired economic effects. I don't think that there should be a 0% inflation mandate as expansion of the money supply has alot of benefits to both recessionairy and growing economies. If the economy gets "too good" and high inflation rears its ugly head we can increase taxation and interest rates in order to quench it again. This goes for all monetary based inflation, not for a supply shock inflation like we had during the 70's oil embargoes as you can't really manage those using monetary tools.
Japan's Bonds Fall Before 10-Year Auction, Yields Increase to 12-Week High
http://www.bloomberg.com/news/2010-...-auction-yields-increase-to-12-week-high.html
****
comment:
Not necessarily a sign that Japan interest rates are out of control (10 year yield still at 1.195%), but just something to keep on the radar.
http://www.bloomberg.com/news/2010-...-auction-yields-increase-to-12-week-high.html
****
comment:
Not necessarily a sign that Japan interest rates are out of control (10 year yield still at 1.195%), but just something to keep on the radar.