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Tag Archives: Abenomics
First: we are not suggesting Japan’s army is comprised of radioactive mutants – perhaps just those stationed within 10 kilometers of the Fukushima gift that keeps on giving alpha through gamma rays. We are merely saying that if one takes Abe’s latest deluded ramblings that Japan is “ready to counter China’s power” literally instead of merely more nationalistic bluster by a prime minister whose first term ended in the runs (literally), then the demographically crippled island nation that has a soaring food and energy inflation problem, sliding wages and radiation that comes in 100,000+ RDA dosage increments, would be well advised to have a few invincible X-Men in its army’s ranks if indeed it has any intention of taking on China. Because as Walter Sobchak would say, “this is not Man(churia).”
What else did the not so big man, with the very big ego (supposedly because he thinks doing Goldman’s reflationary bidding helps anyone besides Goldman’s year end bonus pool), say? Some very strange things – from the WSJ:”Japanese Prime Minister Shinzo Abe said he envisions a resurgent Japan taking a more assertive leadership role in Asia to counter China’s power, seeking to place Tokyo at the helm of countries in the region nervous about Beijing’s military buildup amid fears of an American pullback.” He added that “many nations were concerned that China was attempting to use force to change the status quo in Asia, adding that Tokyo’s role as the region’s leader is to urge Beijing not to follow such a path.”
Uhm, did he say “Tokyo’s role as the region’s leader“? Precisely in what is Tokyo a leader any more? Imported Chinese smog? Unsolicited gamma radiation? Goughing at the pump? Sex doll sales? That pretty much covers Tokyo’s current leadership areas in the region. Sadly, it is this kind of sociopathological self-delusion (and denial) that is the mark of the Japanese government, and why not only was Fukushima a guaranteed outcome (and has now become the worst radioactive catastrophe in history, nearly three years after the explosion), but why day by day, Japan’s society is slowly sinking into the Pacific. Mostly metaphorically, but also literally.
The absolutely hilarious snippets from the sociopath continue:
In an exclusive, wide-ranging interview with The Journal, Mr. Abe also defended his program of economic reforms against growing criticism that the package lacks substance—though he offered few details of new programs, or a timetable, that anxious foreign investors have been seeking.d
What can one say but LOL. But the funniest stuff was naturally reserved for how this feeble, mutagenic David is approaching the Chinese goliath.
“There are concerns that China is attempting to change the status quo by force, rather than by rule of law. But if China opts to take that path, then it won’t be able to emerge peacefully,” he added.
“So it shouldn’t take that path, and many nations expect Japan to strongly assert that. And they hope that as a result, China will take responsible action in the international community.”
Mr. Abe, whom China has criticized as attempting to whitewash Japan’s wartime actions and beef up its military, also said countries in the region shared concerns over Beijing’s arms buildup.
“It’s not just Japan. Many countries have expressed concerns over the increase in China’s military spending which is not transparent,” he said.
Actually it is just Japan, because unlike Japan which still lives in the 80s and thinks it is a superpower, still thinks the Nikkei 30000 is just within reach, still thinks it can restart its 30 or so nukes, still thinks that buying Rock Center was a brilliant idea, and the Walkman and Trinitron are the second coming of the iPod, the other countries in the region know to keep their mouth shut when it’s good for them.
We are far more amused and impressed by China’s resilience to putting Abe in his place. Then again, it is just as easy to bleed Japanese society dry by exchanging China’s massive trade surplus for Japanese labor on ever more-devalued terms.
In retrospect, perhaps it really is not too late for Japan to get that radioactive mutant army, because at the rate things are going that will very soon be its only hope…
- Radioactive fish and the NRDC (vernonradiationsafety.wordpress.com)
- Fukushima overwhelmed with radioactive water – Asia-Pacific – Al Jazeera English (olduvaiblog.wordpress.com)
- Storm Causes Radioactive Leaks at Fukushima (voanews.com)
- Giant Fukushima Mutant Turtle Finally Captured By Japanese Military (topekasnews.com)
Testosterone Pit – Home – What Will It Take To Blow Up The Entire Japanese Banking System? (Not Much, According To The Bank of Japan)
Hideo Hayakawa, former Bank of Japan chief economist and executive director, set the scene on Wednesday when he discussed the BOJ’s ¥7-trillion-a-month effort to water down the yen by printing money and gobbling up Japanese Government Bonds. It wants to achieve what is increasingly called “2% price stability,” a term that must be a sick insider joke played on the Japanese people. He warned that if these JGB purchases are “perceived as monetization“ of Japan’s out-of-whack deficits, it would drive up long-term JGB yields “to 2% to 3%.” Up from 0.60% for the 10-year JGB. “But once interest rates start rising, they would overshoot,” he said. So maybe 4%?
He’d set the scene for the Bank of Japan’s 81-page semiannual Financial System Report, released the same day. Buried in Chapter V, “Risks borne by financial intermediaries,” is a gorgeous whitewash doozie: if interest rates rise by 1 percentage point, it would cause ¥8 trillion ($82 billion) in losses across the banking system.
This interest rate risk associated with all assets and liabilities, such as bondholdings, loans, and deposits has been dropping since April 1, the beginning of fiscal 2013, the BOJ explained soothingly – the largest decline in 13 years. Banks would be able to digest that 1 percentage point rise.
A big part of that interest rate risk is tied to the banks’ vast holdings of JGBs. The BOJ has begged banks to dump this super-low yielding stuff that could blow up their balance sheets. The three megabanks – Mitsubishi UFJ Financial Group, Mizuho Financial Group, and Sumitomo Mitsui Financial Group – have done that. From the beginning of the fiscal year through August, their JGB holdings plummeted by 24% to ¥96 trillion. And much of what they still hold is paper with short to medium maturities that poses less risk.
The regional banks have not been able to do that, and their JGB holdings remained flat at ¥32 trillion. However, the amount of loans with longer maturities, such as those to local governments, has gone up, which raised the interest rate risk “slightly,” the report said.
Then there are the 270 community-based, cooperative shinkin banks. And they’re stuck in a quagmire. They’re stuffed to the gills with JGBs because, unlike megabanks and, to a lesser extent, regional banks, they have no other options to place their ballooning deposits. On their balance sheets, interest rate risk continued its long and relentless upward trend [my take on the shinkin bank debacle…. “We Don’t Feel Any Impact Of Abenomics Here”]
A 1 percentage point rise would cost megabanks ¥2.9 trillion, regional banks ¥3.2 trillion, andshinkin banks ¥1.9 trillion. A total of ¥8 trillion ($82 billion). If the yield curve steepened, with long-term rates rising 1 percentage point and short-term rates remaining low, the losses would be smaller. In all, it would be survivable. The banking system is safe.
Whitewash doozie because it assumes a 1 percentage-point rise. The yield of the 10-year JGB would rise from todays 0.6% to 1.6%. With annual inflation hitting 2% soon, bondholders would still get sacked. Hence Mr. Hayakawa’s warning: if inflation hits 2%, long-term interest would likely head to 2% or 3%, and once they start rising, they’d “overshoot.” So, with a little overshoot, 10-year JGB yields might rise by 3 percentage points, to 3.6%. Still a very moderate interest rate, by historical standards. What would that do to the banking system?
The report tells us what it would do: megabanks would be severely damaged; the rest of the banking system would be wiped out. If there is a parallel stock market crash, the megabanks would be wiped out as well.
The megabanks combined have ¥28 trillion in Tier 1 capital. Against it are credit risk, market risk from stock holdings, interest rate risk, and operational risk. The risk scenario the BOJ envisioned with a 1 percentage point rise in interest rates would create losses of nearly ¥17 trillion for the megabanks, a big part from its bond and loan portfolio, but an even bigger part from its stockholdings. That would leave about ¥11 trillion in Tier 1 capital.
But if the scenario plays out as Mr. Hayakawa sees it, with a 3 percentage point rise in interest rates, losses at megabanks, according to the report, would jump by ¥4.6 trillion, leaving only ¥6.4 trillion in Tier 1 capital.
Then there is the stock market risk. Traditionally, banks held large chunks of shares of companies they did business with. It cemented the relationship and propped up equities, which in turn made loans appear stronger. It worked wonderfully until the bubble it helped create blew up in 1989. Banks turned into zombie banks. Since then, 20 of these zombie banks have been consolidated into the three megabanks. And they have reduced ever so gradually their stock holdings to get out from under that risk that took them down the last time.
But in the money-printing induced mania, they’ve been adding stocks, and their exposure to the stock market remains enormous. The market downturn envisioned by the BOJ would produce around ¥7 trillion in losses. If that downturn becomes a crash, of which Japan has seen its share, losses could easily wipe out the remaining Tier 1 capital. Bailout time.
Regional banks will get wiped out by a 3 percentage point rise in interest rates. They don’t need a stock market crash. Even the BOJ is worried. According to its risk scenario with a 1 percentage point rise in interest rates, losses will eat up ¥11 trillion of the banks’ ¥15 trillion in Tier 1 capital. Leaves ¥4 trillion. If interest rates rise by 3 percentage points, another ¥4.6 trillion in losses would hit the banks, more than annihilating all of their Tier 1 capital. They’d be goners.
And the beleaguered shinkin banks? They have ¥6.5 trillion in Tier 1 capital. They don’t own a lot of stocks but are loaded with JGBs and local government bonds with long maturities. In the scenario where interest rates rise 1 percentage point, half of their Tier 1 capital would be wiped out. A 3 percentage point rise in rates would produce an additional ¥2.7 trillion in losses, wiping out almost all of the remaining Tier 1 capital.
But the 3 percentage point rise is only theoretical. If that happened, the government wouldn’t be able to make interest payments on its ¥1 quadrillion in debt. The whole house of cards would come tumbling down.
No, interest rates will not be allowed to jump this high. Even if inflation is 6%, the BOJ will see to it that yields remain low. It would impose brutal financial repression. It could use numerous tools, including a yield peg. If it had to, it could print enough money to buy the entire national debt of Japan, even if that might finally be “perceived as monetization” – with all the consequences that this would entail.
Japan is still the second richest nation in the world, according to Credit Suisse. About ¥1 quadrillion of that wealth is tied up in JGBs. But debt that yields almost nothing and can never be paid back, will eventually succumb to fate: either slowly through inflation and devaluation or rapidly through default. Abenomics has chosen the slow route.
But if the house of cards were allowed to come down rapidly, from the ashes would rise a young generation that suddenly could look into the future and actually see something other than the oppressive dark wall of the government debt hurricane coming their way.
Trade is another critical pillar of Abenomics. Devaluing the yen would boost exports and cut imports. The resulting trade surplus would goose the economy. But the opposite is happening. And it isn’t happening in small increments, with ups and downs over decades, but rapidly and relentlessly. It’s not energy imports. They actually dropped! It’s a fundamental shift. Read….Why I’m So Worried About Japan’s Ballooning Trade Deficit
- Kuroda Put Prompts Japan Banks to Shift to Longer Bonds (bloomberg.com)
- Japan banks cut JGB holdings 24 pct in March-August – BOJ (uk.reuters.com)
- PREVIEW-Global woes sap BOJ confidence in economic outlook (xe.com)
- Revenge of the Japanese Zombie Banks (elementulhuliganic.wordpress.com)
On September 5, 2008, Citi’s Matt King wrote a report titled “Are the brokers broken?” which in its rhetorical question (the answer was and still is yes), implicitly explained why ten days later the world would experience the largest bankruptcy in the history of western civilization, crushing confidence in the financial system to this day, and forcing the Fed for five consecutive years to be the marginal source of credit money in a “not without training wheels” world in which the longer the central bank is the only backstop of anything and everything, and where failure and risk are prohibited through artificial means, the less faith there is in any and every financial counterparty. So when Matt King sat down to pen his latest warning in which he showed how the world is now “positioning for the wrong sort of recovery”, we naturally listened. Below are the key charts which not only show the lifecycle of the source of every modern Keynesian empire’s boom and best, namely debt, but why 5 years later, “the slate has still not been wiped clean.”…
- Charts from Lacy Hunt’s Presentation at Casey Research October Summit (safehaven.com)
- A debt ceiling solution is coming, here’s when (forexlive.com)
- Peter Schiff On The Debt Ceiling Delusions | Zero Hedge (olduvaiblog.wordpress.com)
- The Credit Bubble Is Not Only Back, It Is 94% Bigger Than In 2007 (zerohedge.com)
Japan Pummeled By Soaring Food And Energy Prices, Plunging Wages And Ongoing Core Deflation | Zero Hedge
- Japan’s Soaring Food And Energy Prices, Plunging Wages (marketsanity.com)
- Japan Inflation Accelerates to Fastest Since 2008 on Energy (bloomberg.com)
- Japan Prices Jump, But it Could be the Peak (blogs.wsj.com)
- UPDATE 1-Japan consumer inflation hits new 5 yr-high, bodes well for BOJ (xe.com)
- Japan inflation hits 5-year high (gulfnews.com)deflation
- S.Korea’s Abenomics anxiety attack proves to be short-lived (uk.reuters.com)
- Bhaskar Chakravorti: We Have Lost Sight of the Real Ticking Bomb on the Korean Peninsula (huffingtonpost.com)
- Abenomics will mean less central bank independence. But if it’s Japan’s best shot at escaping deflation, does it matter? (qz.com)
- How the Past Gets in the Way of ‘Abenomics’ – Bloomberg (bloomberg.com)
- South Korea central bank cuts rates (bbc.co.uk)