Bank of Japan to Pump $1.4 Trillion Into Economy

[ProdigyofZen]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

I guess at that point it's the next guys turn in line to depreciate, either the USD or EUR.

Correct, the next guy is coming up! What country that is no one knows except for EJ

They will extend their balance sheet and the game until PCO collapses their bond market.

[c1ue]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Right Egypt isnt trying to print 1.4 trillion but they are running out of capital fast. They could easily have a bond and currency crisis in the next 3 months compared to Japan.

Egypt's deficit is about $26 billion vs. a GDP of $520 billion, give or take. 5% ish.

Japan's proposed stimulus is $1.4 trillion vs. a GDP of 5.87 trillion. 23.8%

Sure, Egypt has far less cash and wealth. But the fiscal issues Japan faces are also non-trivial.

Egypt - for example - is still growing. Japan...isn't.

[ProdigyofZen]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Egypt's deficit is about $26 billion vs. a GDP of $520 billion, give or take. 5% ish.

Japan's proposed stimulus is $1.4 trillion vs. a GDP of 5.87 trillion. 23.8%

Sure, Egypt has far less cash and wealth. But the fiscal issues Japan faces are also non-trivial.

Egypt - for example - is still growing. Japan...isn't.

I agree Clue but I also know that politically insignificant countries within the IMS like Egypt default with regularity whereas Japan being a top 5 important member in the IMS club do not default.

If Japan did somehow defaulted in the next year the collateral damage would be astronomical.

[Guest]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Littleshark, If you think about it, it is pure genius from Bernanke and Draghi. They got Japanese institutions to finance US and European deficits. The scary thing is, the Japanese have trillions in fixed income. USTs will be bid so hard, it is crazy.

Any thoughts on other implications of money coming out of Japan. Where else should it go besides USTs?

[GRG55]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

I wonder what that means if they get it there? JPY was there from 2004-2008 in one of the greatest global expansions we've seen, and their economy went nowhere.

Seems to me that their products have gotten worse (electronics/autos) relative to, for example, South Korea in the meantime, their finances have gotten worse, and their energy situation is worse. They're doing nothing to structurally change their economy, just resorting to mimicking the fed in a grander way.

So I understand they may recieve some competitive edge back, but now the global economy is much weaker, so what does it really mean. Aren't they just extending the inevitable?

I guess at that point it's the next guys turn in line to depreciate, either the USD or EUR.

Extrapolating a secular trend "forever" is a dangerous pastime...

[ST]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

My feeling is Japan will blow up, just a matter of time and will Bass's premium decay to zero before that. I predict if he's continually doing new tranches of his Japan fund, he'll hit a home run at some point, but some will decay away first.

He's made a small fortune on this trade (by starting with a big one, as the saying goes)...as of a year ago the widowmaker trade had his Japan Macro Opportunities Master Fund down 61% since inception:

http://www.scribd.com/doc/94194863/Kyle-Bass-April

[ST]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Extrapolating a secular trend "forever" is a dangerous pastime...

Extrapolating non-secular trends can be just as dangerous ;-)

Randall Munroe-xkcd dot com.JPG

Author-Randall Munroe

[GRG55]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Extrapolating non-secular trends can be just as dangerous ;-)

[ATTACH=CONFIG]4675[/ATTACH]

Author-Randall Munroe

...as is trying to draw a curve with only two data points...

Thanks for the chuckle!!

[cobben]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Jesse had a good piece on Japan back on March 12:

Kyle Bass On Japan and Two Key Slides

. . .

I think that although it is packed with facts, Kyle Bass's analysis is a little overly simplistic, and not completely fungible to other countries as he implies in the Q&A as indicated in the talk below.

I am a little disappointed that Mr. Bass deals with the externalities through the numbers, but never discusses the structure of Japan's economy and the keiretsus, which is very important, and far from incidental. He also gives a nod to Japanese culture and then dismisses it. That also is an error, but it is a very common Western error, and he has plenty of company. After all, inside every foreigner is a greedy, self-serving American style plutocrat just waiting to get out, right?

He also ignores the enormous private losses from the real estate bubble that were never realized, and were essentially buried by the industrial-financial combines together with a single party government of well-intentioned insiders.

He says that Japan is already in the zone of insolvency, and it is obvious that they will collapse. I think that this is possible, but not inevitable. If there ever was a case to be made for MMT, or some sort of debt restructuring in the model of Iceland, another island nation, Japan might be it. I suggest the latter might be more fruitful because of their dependency on natural resource imports.

Japan's strength, as always, is in what is not seen, not so readily apparent, to Western eyes.

The primary obstacles to restructuring are the scarcity of natural resources which presumably must be imported, and the lack of population growth with immigration as a threat to racial homogeneity. Available real estate and population density on an island are also key factors. These are the classic scenario inputs that lead to colonial expansion which seems not to be a viable option at this time.

The comparisons to the US situation are overly glib and miss the key differences. The solution for the US is growth, and it has all the options open that are so problematic for Japan.

What the US lacks is a more public spirited policy making apparatus, one that is not captive to special interests. It labors under the corruption of big money, and suffers from growing wealth inequality that is beginning to approach a third world oligarchy. Japan has a GINI coefficient of 38, whereas the US has a coefficient of 45, and increasing.

I am not so much concerned for Japan, but for the tangled web of carry trades, derivatives, fraudulent misrepresentations, and leverage that is the Western financial system. Japan would certainly be large enough to give it a stress test beyond the Fed's most rigorous scenarios.

The financiers such as Kyle Bass might be more concerned about this, and not look so greedily at the situation as just another money making opportunity, if they were not so arrogantly sure of a US dollar bailout at any and all costs, even in the event of a major financial dislocation that begins abroad.

Here is a recent talk by Kyle Bass regarding 'The Coming Financial Crisis in Japan.'

[Polish_Silver]

Exchange rate vs Inflation

This thread could have been titled "Kyle Bass gets his ass handed to him by the Bank of Japan."

This is exactly why we are never short the balance sheets of central banks.

If Bass has any money left by the time the BoJ does run into trouble in, say, 2019, it won't be enough to offset his losses up to that time.

Advice to Bass: Short the yen, long the Nikkei, fine, but the BoJ's balance sheet is bigger than yours. Don't short it.

I think we all agree that exchange rates are a major cause of domestic price inflation, especially when you import gobs of oil, like Japan does.

Given that the yen is going down about 5%/month, wouldn't we expect a corresponding degree of price inflation? But when?

Considering the US experience circa 1971, maybe it only takes 1 year?

Peter Bernholz specifically mentioned CB bond purchases as a major driver of inflation.

http://www.bloomberg.com/quote/USDJPY:CUR

[llanlad2]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Jesse had a good piece on Japan back on March 12:

Kyle Bass On Japan and Two Key Slides

'

The slide below is one of the key slides referred to from the Kyle Bass presentation and it relates to Japan's demographics which is always brought up by the Japan is doomed crowd. Can someone explain why it's relevant? To my mind if today's workers are sufficiently more productive than the previous generations then why does a declining population matter? In fact there may be advantages. I would definitely prefer Japan's demographic "problem" rather than Egypt's for example.





EGYPT POPULATION

[lenrisk]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Kyle Bass recommended the trade: long gold short yen. He warned against long Nikkei and thought CDS on JGBs was cheap recently. Seems to be working out ok for him.

[raja]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

The Bank of Japan unleashed the world's most intense burst of monetary stimulus on Thursday, promising to inject about $1.4 trillion into the economy in less than two years, a radical gamble that sent the yen reeling and bond yields to record lows.
[/COLOR]

Finally . . . the debate between the Keynesian "clowns" and the Autrian "goldbug fools" will be settled.

Krugman (clown) today:

Some of us have been urging the Bank of Japan to get truly aggressive and adventurous on monetary policy — and it’s happening! And it only took 15 years.
Seriously, this is very good news. Japan is finally, finally making a real effort to escape from its deflation trap. We should all hope it succeeds.

Mish (goldbug fool):

Central bankers have gone totally mad. The stunning news of today is a new pledge by Japan to double its monetary base in two years as the Bank of Japan Unveils Aggressive Easing. Japan is eventually going to achieve "escape velocity" on deflation, and I assure you Japanese citizens will not like the results when it happens. When the Japanese bond market finally reacts to this inane policy, there is going to be a global currency crisis.

I'm betting on Mish.

Also, we have a timing call by EJ . . . Japan "runs into trouble" 2019.

[shiny!]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

Also, we have a timing call by EJ . . . Japan "runs into trouble" 2019.

This is also EJ's timing call for the breakup of the IMS. Hard to imagine how this can go on for another six years! Aren't we bound to have a major black swan before then? The more out of balance, fragile and insane the IMS gets, the smaller a black swan needs to be to throw everything on its head.

Or perhaps in six years things will be so messed up that we won't even notice the IMS died. Just as people in Europe didn't have a date to mark on their calendar when the Roman Empire officially ended. I doubt we'll see headlines in the papers announcing the end of the IMS. But I want to see those headlines. I want my future to be tidy and well-labeled, dammit!

[ProdigyofZen]

Re: Bank of Japan to Pump $1.4 Trillion Into Economy

The slide below is one of the key slides referred to from the Kyle Bass presentation and it relates to Japan's demographics which is always brought up by the Japan is doomed crowd. Can someone explain why it's relevant? To my mind if today's workers are sufficiently more productive than the previous generations then why does a declining population matter? In fact there may be advantages. I would definitely prefer Japan's demographic "problem" rather than Egypt's for example.





EGYPT POPULATION

I continue to ask in all of history has there ever been a debt default caused by a demographic decline/problem.


I have yet to get an answer.

but it looks like Japan's current account is going back into surplus. http://www.bloomberg.com/news/2013-0...nds-slide.html