Japan's Debt Markets "Implode"
Japan's bond markets are "imploding" as Japan's prime minister calls the situation "worse than Greece."
As in the Greece that defaulted on three-quarters of its national debt in 2012.
Will Japan be replacing Argentina as the IMF's poster child.
Japan’s Fiscal Straitjacket
For decades now Japan has been teetering on the edge of a cliff, with government debt hitting 263% of GDP -- in US terms that's a $65 trillion debt.
That's way past the traditional red line of 100% of GDP.
In fact, it's more than double Greece's debt to GDP back in 2012.
Japan’s enormous debt has been sustainable only because the vast majority of Japanese government debt is held by the Japanese people. Who have a very strong bias for domestic assets and park it in banks and life insurers.
That's in contrast to Greece, where 8 in 10 owners were footloose foreigners who dump at the first sign of trouble.
It helps that the central bank -- the Bank of Japan -- has bought a majority of goverment debt.
In the US it's under one fifth
Teetering Debt Markets
Still, the sheer scale of Japan's debt has been a sword of Damocles over markets. It's a big reason the bank of Japan moves so slow -- and so late -- for fear of upsetting the delicate balance.
Well markets just crashed that delicate balance, with the latest auction of Japanese govenrment debt hitting the weakest fundamentals since 1987.
As in nobody wants Japanese bonds.
This sent bond prices tumbling to all-time records. The benchmark 10-year hit levels last seen in the 2008 crisis.
JP Morgan called it a "collapse."
This matters because in Japan, like the US, bonds hold up the entire financial system -- banks, sure, but also the pensions for 40 million increasingly impoverished Japanese -- including 96% of those over age 60.
Fiscal Paralysis
What sent bonds tumbling was new data showing Japan edging into recession once again. Paired with inflation in Japan that's now 3.7% -- double the rate in Donald Trump's America.
In other words, stagflation.
The data knocked bond markets, but what really sent it over the edge was that 'worse than Greece comment by the Prime Minister. Delivered in the context of his refusing to stimulate the economy with tax cuts.
As in, he's admitting Japan has hit the wall, it can never again afford tax cuts because the debt is too big.
This actually happened in Britain in 2022, when freshly printed Prime Minister Liz Truss actually did propose tax cuts to stimulate a slowing economy.
That made British bond markets collapse, putting major British banks and major pension funds at risk of going bust.
At which point, being a politician, she retreated.
And so Japan now joins the British in the basketcase of countries who have borrowed their way into fiscal paralysis.
What’s Next
Japan could buy a couple more years if they can cut a trade deal with Trump and get back to growth.
But it's only a matter of time; Japan has now crossed the Rubicon of tax cut straitjacket.
The next stop is required tax hikes to service the ever-growing debt.
That would send Japan into a doom-loop, with higher debt driving higher taxes that shrink the economy and grow the relative debt.
As for America, we’re a decade behind Japan on debt.
But now that $2 trillion deficits are looking permanent -- apparently no matter which party's in charge -- we are barreling down the same path as Japan.
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We are hitting the wall. Don't think this is limited to just Japan, they are the BIGGEST external Holder of US debt! they unload it...the FED has to ADD to the $7 TRILLION OF DEBT they already have along with the $37 Trillion at the Treasury($130,000 A PERSON). We have come to the END of what is good for Goldman Sachs is good for the world(Tucker's interview of Luke Gromen explores the end of that age, like the end of what was good for GM was good for the USA).
It is TIME TO FORCE wall street(global financial markets)...to ACTUALLY invest(not moving your Intellectual property to Ireland to GAME taxes? or hold financial instruments for a pico second), and DRAMATICALLY SHRINK its useless overpaid employment. Today we have money spinning, the richest man in NJ...is a hedgefund trader who uses math and physics to front run the markets and hold stocks and bonds for a pico-second...IT SERVES ZERO purpose, beyond his enrichment! I don't believe pumping and dumping is any good with its claim that "efficient" markets, help society! Ny area of NJ every other guy I meet is a financial adviser with laughable little knowledge beyond buy Amazon, Apple, Google, etc because GOVERNMENT will PRINT money and RESCUE Wall STreet like 1987, 2000, 2008, etc.
I call for a 4% TAX on all the GROSS of wall street trades(Stocks, bonds, etc even better global financial markets) or moving money offshore. WE NEED investment to GROW actual USEFUL businesses...not idiots on wall street NOT CREATING useful business, beyond building 3rd,4th houses. Travel outside money centers, tech centers and power centers...or their vacation areas....you see unpainted houses and Appalachian like POVERTY with Few stores, no restaurants, meth addled young, no hope, etc!
Japan got to the point where over 50% of its Government debt was held by BOJ because nobody other than BOJ wanted it at essentially 0% interest. The Yen carry trade then compounded the problem.
After the Japan bubble collapsed (when the Emperor's enclave in central Tokyo was valued at more than the entire State of California (And as SNL jokingly declared The Rockefeller Center in NYC as "A subsidiary of the Mitsubishi Corporation"), instead of taking the hit and allowing the pain to pass then recover, the Japanese Government decided to pursue it's reckless policy of zero interest rates forever without addressing the fundamental problems with a Japanese economy that had lost its competitiveness for a number of reasons.
It seems to me that the US is essentially pursuing the same track because these days nobody can bear any pain. Actually that is less true in Asia than in the West. So one has to wonder why Governments are incapable of solving problems through taking tough measures to clear problems and move on. If that is because they simply want to get re-elected then one has to question the viability of the Western "democratic" structures and systems which are leading us all towards totalitarianism.