(UPDATE on JGB yield) After hitting the all-time low of 0.315% in the morning market, the yield on JGB 10 years reversed violently in the afternoon market, hitting as high as 0.65% when the bond futures started to collapse. Nikkei Shinbun quotes a bond strategist who spoke the truth:
低利回りでの買い手は日銀しかいない。投資家からの売りが出ると（債券を買い持ちできない）証券会社は先物などで損失回避のための売りを出さざるを得ず、債券先物の急落につながった
In the low-yield environment, BOJ is the only buyer [of JGB]. When investors start to sell, investment banks (who cannot buy and hold bonds) has to sell futures to avoid losses, resulting in the sharp drop in the JGB futures.
That's what you get, when the central bank corners the market. Japan's central bank is 55% owned by the national government.
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A very good vid from Addogram:
Rise of the interest rate on the government bond to 4% and it's game over, the video says. Right now, in the broken bond market that from now on only front-runs Bank of Japan who will purchase 70% of issues each month, the yield of 10-year JGB is 0.315%, the historical new low. According to Nikkei Shinbun, the market thinks it will breach 0.3% soon.
In the meantime, the Japanese stock market seems to be broken, thanks to the crazy central bankers working hard for the LDP administration. While the rest of Asia falls due to the growth and job concerns in the US, one of their chief export destinations, worries over the new strain of bird flu and worries over North Korea, Nikkei's on a crack, breaching 13,000 for the first time since the so-called "Lehman crisis" as the Japanese call the global financial crisis triggered by a host of financial meltdowns in the prominent US financial institutions including Lehman Brothers and AIG.
The Nikkei Average is currently up 475 points to 13,109, with the firm (almost religious) belief that the financial maneuvering will result in the prosperous real economy and that the higher stock market means the better real economy.
In a country where the Marxian economics is still taught and researched in universities, many Japanese don't have a clue how these central bankers worldwide think and behave. They clearly think the bankers have the best interest of average citizens in mind.
Just like in matters nuclear and radiation, "Well I don't know much about it but the government and those experts say it is safe, so who am I to argue?"
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18 comments:
Hmmm... The state can print money directly, why to use the debt mechanism at all? Of course printing money causes inflation but, well, that's not the main worry. If Zimbabwe can, if Milosvic's Serbia could get away with that for decades... why not Japan? And also, what's the problem with default? All half-serious states have defaulted at some point...
I really think that the debt problem is a chimera: something to keep commoners worrying about the unfair rationing coupons we call money, because for individuals and even companies, who can't issue their own money, debt is indeed a serious problem: law obliges - but what law can oblige the source of all laws which is the sovereign state?
The real issue is that money is nothing but a convention: unlike most people seem to think, money has no actual value except what the system guarantees. The state could totally not tax anything and just keep printing money to pay for its expenses, what is a kind of tax via inflation.
But that would end the business of bankers and other speculators, who grew up in a time in which money, based on gold and silver, did have a backup real value (because states were too weak and unimaginative to issue paper money, except China, so often at the forefront of human ingenuity). So banksters do manage to keep in control of governments so they do not default and don't start playing the sovereign card and printing money as they need. They have created international organisms like the World Bank and the IMF and WTO to blackmail governments into squeezing their populations to pay the debt themselves generate via political corruption.
Will Japan default? I don't know nor I think it is really important: what matters is the real economy: workers, knowledge, industry, farms, fisheries, mines and communication networks. You can run all that in a purely socialist manner without any money or just a minor role for it in the distribution aspect (rationing coupons but flexible in use, not so different from what most people really use them in fact).
In the US and part of Europe, bankers started to do loose lending, following the government policy and central bank's encouragement, securitized the loans, and securitized the securitized loans (square, cube), created a real estate bubble and made tons of money. They popped the bubble and made more money. Then they end up with people's homes that they took in foreclosures, and are making more money renting these homes to people who lost their homes. Many people had their savings, wealth in their homes as equity, now they are gone. Wiped out.
Fiat money may be a convention, but that's no comfort to millions who lost just about everything.
Many people just have no savings whatsoever and live up to the day. I know what you're telling me but the only solution is socialism. Otherwise, as is happening in Europe the big banksters take it all and leave the 99.99% without nothing: no savings, no homes, no food, no hope.
The industrialized countries of the World are at a crossroads: one way leads to Haiti (perpetual debt, perpetual bondage, perpetual misery) and the other leads to Cuba (where the basics of living, including a modelic health care, home, food, education... are guaranteed for all). I definitely want the Cuban way (with some improvements of course but it's the only way that makes sense).
Yeah Maju, I'm up to my ears with socialism. Little what I scrape each day, they tax it to give it to illegal Mexicans so they can drive brand new SUVs and have as many babies as they want.
@Maju: just printing away the deficit was the standard method for South American dictatorships. Didn't really elicit phenomenal well-being…
The real problem with this policy is that it completely undermines whatever trust people still have in the government, while not inciting this government to balance its accounts (why should it, if there is such an easy solution?). It's the financial way of sticking one's head in the sand.
@Anon 1: That's because you are rich or at least very well off. Also "illegal Mexicans" are citizens of the World, exactly like you and me, you selfish greedy ... (fill in the blanks)! They work what you enjoy and still you dare to pee on them: you have no shame! That's the kind of attitudes that are doing so much harm to our world!
Maju, I don't need to take insult from you like that. Citizens of the world? Why don't you feed them, then? I'm barely above minimum wage, and you call me rich. That's too rich for me. Go live in your socialist utopia, if it still exists. North Korea, maybe.
@Anon2: I'm not saying that printing money is the solution but it certainly is less worse than other non-socialist options, like what we are suffering now in Europe: the people being robbed of everything: their pensions, their rights, their homes, their savings, their lives way too often... just to feed the bottomless pockets of some rich pigs.
Much better to declare bankruptcy, nationalize everything that matters and keep the economy and society going instead of destroying it. If at the very least the BCE would have applied less restrictive monetary policies since the early or middle 2000s decade, the economy would not be even half that bad: there's just less and less money circulating, business close one after the other for lack of demand, people jump through their balconies when police rings to have them evicted, direct taxes (which burden especially the poor) make everything very expensive, in return we get less and less: less health care, less social services, less public education... less of everything but police and military... all goes to the speculator banksters and their mercenary troops.
This policy of austerity for the poor (and essentially innocent) to give away to the rich (and essentially guilty) is totally destroying the "trust" in democracy that you mean to defend.
Time to turn the tap off. One way or the other it will be done: austerity for those who have it all, time to get not our share of the cake... but the cake-making machine. That is true democracy: where the people controls the economy, economy which they anyhow feed with their work and all their lives. The ruling bourgeois class is just an organizer elite and nowadays is more and more parasitic and totally useless.
@Anon1: You were the one behaving aggressively first of all, towards Mexicans. What do you expect: hatred feeds hatred.
I assumed you were well off because you discourse is so bourgeois that is not proper of a working class member. But guess that you are very well brainwashed. Wake up the Capitalist dream is over, even in North America!
I said Cuba, not North Korea (which is, like China, a Capitalist state under a red pretext - and pretty much not even such red pretext anymore because the ideology of North Korea is totally fascist as far as I can tell). But Cuba? Sure some things can be improved especially in the ways of political management, which have way too many Stalinist vices, but has not a single thing to envy the USA: guaranteed basic living standards for all, while in the USA, like here in Europe, people die in the streets of cold and hunger, or almost worse: have to go to those "charity" shelters where they are raped and abused by Gestapo-like guards.
Formal democracy? In the USA you can choose between two identical options, what farce of democracy is that?! All the media are in very few hands and there is emergency law since 2001, with the authorities having the legal right to arrest you without charges or even kill you arbitrarily if they wish... Almost the same here in Europe. I wish this was Cuba or at least Venezuela, where they do have a government of the people, for the people and by the people, as you Gringos like to say.
Maju, I think you'd be better off not assuming too much about people you don't even know, and accusing them of things that may be totally off the mark. I would certainly not base my judgment on "bourgeois" discourse, particularly when people who comment here come from all over the world and whose primary language is not even English.
Maju, here are some of the rich people you despise, who dare have more than 100,000 euro in the banks, having effectively lost their retirement money, livelihood, hard-earned wealth, thanks to the socialist EU while their so-called leaders moved their money out, just in time. Happy now? http://www.reuters.com/article/2013/04/04/us-cyprus-bailout-idUSBRE93310R20130404
I don't despise anyone but, meh, most people on Earth, including now those you mention, can just dream, if they even dare, with having €100,000 at all.
What I'm saying is that if you have much more than the average, you surely don't deserve it. Because nearly everybody strives and works hard but only a few, maybe just lucky of being born in the right place and time actually get to accumulate that sort of money. I mean: €100,000 is a hundred monthly salaries (probably more in Cyprus), what means ten years of work of a regular worker. Just working, if you can even find a job in this time and age, you don't make that much - at least ***normal*** people don't.
So one way or another those people cheated.
Anyhow the shock in Cyprus is not that much about most people having direct loses but about an economy which relied heavily on banking being totally dislodged by this Eurogroup wrongdoing.
The vast vast majority of Cypriots got their savings fully guaranteed by the deal but that is not what worries them after all but the fact that the economy of the small country has been totally dismantled by this more than dubious decision. Obviously banks must fall, and they will one after the other, it's a fact of life and there is hardly any safe way to keep your excessive earnings, if you have them, safe vs. all risks. Said that, this outcome is quite troublesome for Cyprus as whole and announces even more of that for all Europe (and elsewhere).
It may take one year, two or five but the whole system is effectively collapsing and each time I think of it, even if I am one of the few who sees a window of opportunity for hope in that collapse, I can't but shiver of fear and anticipated pain, not just ***my*** pain but the pain to be felt all around. I can, in a way, hear the terrible cries of this dark time of unavoidable most harsh transition that is falling upon us.
Nuts. I was really hoping for some enlightened discussion about the meaning of this news story. Instead we get Mr Maju's rants and diversions. Please people, do not respond to him. Let's get the actual discussion back in gear.
I am convinced though. Tomorrow I leave for Caracas, where everything is free and people live forever. Hopefully I don't get shot.
How much do I love this blog??? Thanks for the snark.
Well, yes, if someone could try to explain why threatening to print money on a large scale sends the stock market up some 40% in six months I would appreciate. I doubt this price hike is factoring in 20 years of 2% inflation, just like I doubt Japanese companies projected earnings to have shot up 40%...
Printing money guarantees that investors get paid... by the moment. It is also the last-effort hope of a collapsing economy.
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