A Quadrillion Yen And Counting – The Japanese Debt Bomb Could Set Off Global Panic At Any Moment

Shibuya Crossing in Tokyo, JapanHow much is 1,000,000,000,000,000 yen worth?  Well, a quadrillion yen is worth approximately 10.5 trillion dollars.  It is an amount of money that is larger than the “the economies of Germany, France and the U.K. combined“.  It is such an astounding amount of debt that it is hard to even get your mind around it.  The government debt to GDP ratio in Japan will reach 247 percent this year, and the Japanese currently spend about 50 percent of all central government tax revenue on debt service.  Realistically, there are only two ways out of this overwhelming debt trap for the Japanese.  Either they default or they try to inflate the debt away.  At this point, the Japanese have chosen to try to inflate the debt away.  They have initiated the greatest quantitative easing experiment that a major industrialized nation has attempted since the days of the Weimar Republic.  Over the next two years, the Bank of Japan plans to zap 60 trillion yen into existence out of thin air and use it to buy government bonds.  By the time this program is over, the monetary base in Japan will have approximately doubled.  But authorities in Japan are desperate.  They know that the Japanese debt bomb could set off global panic at any time, and they are trying to find a way out that will not cause too much pain.

Unfortunately, the only way that this bizarre quantitative easing program will work is if investors in Japanese bonds act very, very irrationally.  You see, the only way that Japan has been able to pile up this much debt in the first place is because they have been able to borrow gigantic piles of money at super low interest rates.

Right now, the yield on 10 year Japanese bonds is sitting at an absurdly low 0.76%.  But even with such ridiculously low interest rates, the central government of Japan is still spending about half of all tax revenue on debt service.

If interest rates go up, the game is over.

But now that the Japanese government has announced that it plans to double the monetary base, it would be extremely irrational for investors not to demand higher rates on Japanese government debt.  After all, why would you want to loan money to the Japanese government for less than one percent a year when the purchasing power of your money could potentially be halved over the next two years?

Amazingly, this is exactly what the Japanese government is counting on.  They are counting on being able to wildly print up money and monetize debt, but also keep yields on Japanese bonds at insanely low levels at the same time.

For the moment, it is actually working.  Investors in Japanese bonds are behaving very, very irrationally.

But if that changes at some point, we could potentially be looking at the greatest Asian economic crisis of all time.

And there are some very sharp minds out there that believe that is exactly what is going to happen.

For example, the founder of Hayman Capital Management, Kyle Bass, has been sounding the alarm about Japan for a long time.  He correctly predicted the subprime mortgage meltdown, and in the process he made hundreds of millions of dollars for his clients.  Now he believes that the next major crash is going to be in Japan.

According to Bass, the bond bubble in Japan is so large that once it begins to implode fear is going to start spreading like wildfire…

Remember, Japanese banks in general have 900% of their tangible assets invested in JGBs that are the most negatively convex instrument you can put into a portfolio. Assume for instance that a bank holds a 10 year bond yielding 80 basis points. A 100 basis point move will cost the JGB investor about 10 years of expected interest payments.

Think about the psychology of all the players and financial implications if rates do move 100 basis points. Think about the solvency of a nation which currently spends 50% of its central government tax revenues on debt service, half of which earns the lowest yields of any country in the world.

You can’t look at this as a simple question. You need to think about this as a multivariate equation. You have to think about the incentives and the fears of all the participants. And you need to think about the fiscal sustainability of the government.

If rates even rise by a full percentage point, it could start a stampede toward the exits that nobody in the entire world would be able to control…

I ran a survey of 1,009 Japanese investors where we asked: “If rates were to move up 100 basis points, would that engender more confidence and make you want to buy more JGBs?” or, “Would you take your money elsewhere, even if it were hamstringing your government’s ability to operate?” 8 – 9% of respondents that said that they would buy more bonds and almost 80% said they would run, not walk the other way.

For much more on this, you can watch a video of Kyle Bass discussing why Japan is doomed right here.

And of course Japan is not the only “debt bomb” that could potentially go off over in Asia.  As I mentioned in another article, the major problem over in China is the level of private debt…

In China, the big problem is the absolutely stunning growth of private domestic debt.  According to a recent World Bank report, the total amount of credit in China has risen from 9 trillion dollars in 2008 to 23 trillion dollars today.

That increase is roughly equivalent to the entire U.S. commercial banking system.

There is simply way, way too much debt in our world today.  Never before has there been so much red ink all over the planet at the same time.

Many in the mainstream media insist that this party can go on indefinitely.

But that is what they said about the housing bubble too.

Sadly, the truth is that every financial bubble eventually bursts, and this global debt bubble will be no exception.

I hope that you are getting prepared while you still can.

The G-7 Forex Intervention Is A Perfect Example Of How Manipulated The Global Currency Market Really Is

What do governments and central banks do when they don’t like what is happening in the financial markets?  They directly intervene and they manipulate the financial markets of course.  On Friday, the central banks of the G-7 acted in concert to drive down the value of the surging yen.  So why did they do this?  Well, the fear was that a rising yen would hurt Japanese exports at a time when the economy of Japan needs all of the help that it can get.  So, as central banks have been doing with increasing frequency, they directly intervened in the Forex market in order to bring about the result that they desired.  Unfortunately, this is not an isolated incident.  The truth is that foreign governments, central banks and large financial institutions are constantly manipulating the Forex, precious metals and stock markets all over the globe.  You see, in today’s global economy the “stakes are so high” that the free market cannot be trusted.

The reality of the matter is that none of the financial markets are really “free markets” anymore.  Not that they are completely rigged, but to say that they are very highly manipulated would not be a stretch.

At least this time the manipulation was made public.  Of course it would have been really hard to hide the fact that all G-7 central banks intervened in the Forex on the same day.

The last time there was such a coordinated intervention in the global currency market was back in 2000 when central banks intervened to boost the struggling euro.

But the truth is that individual central banks attempt to manipulate the Forex all the time.

Some of these interventions become public.  In September 2010, a bold 12 billion dollar move by the Bank of Japan to push down the value of the yen made headlines around the globe but had only limited success.

Another example of this from last year was when the Swiss National Bank experienced losses equivalent to about 15 billion dollars trying to stop the rapid rise of the Swiss franc.

Many nations around the world have become extremely sensitive to currency movements.

In particular, there are several Asian nations that are known to be constant currency manipulators.  For example, Singapore is very well known for intervening in the foreign exchange market in order to benefit exporters.

And that is what this most recent intervention on behalf of the yen was all about.  It was about making Japanese exports cheaper.

But who is going to say no to Japan right now?  It is believed that Japan asked the G-7 to do this, and so they did.

Japanese Finance Minister Yoshihiko Noda told the media the following about this massive intervention in the marketplace by the G-7….

“Given yen moves after the tragic events that hit Japan, the United States, Britain, Canada and the European Central Bank have agreed with Japan to jointly intervene in the currency market.”

So isn’t the Forex supposed to be a free market?

If you still believe that, I have a bridge to sell you.

According to Kathleen Brooks, the research director at a major Forex trading firm, it looks like there is a certain level that global authorities simply will not allow the yen to rise to….

“It looks as though global authorities are willing to pull out all of the stops to defend the 80.00 level in dollar/yen.”

The following is the full statement released by the G-7 defending their currency intervention….

Statement of G-7 Finance Ministers and Central Bank Governors

March 18, 2011

We, the G-7 Finance Ministers and Central Bank Governors, discussed the recent dramatic events in Japan and were briefed by our Japanese colleagues on the current situation and the economic and financial response put in place by the authorities.

We express our solidarity with the Japanese people in these difficult times, our readiness to provide any needed cooperation and our confidence in the resilience of the Japanese economy and financial sector.

In response to recent movements in the exchange rate of the yen associated with the tragic events in Japan, and at the request of the Japanese authorities, the authorities of the United States, the United Kingdom, Canada, and the European Central Bank will join with Japan, on March 18, 2011, in concerted intervention in exchange markets. As we have long stated, excess volatility and disorderly movements in exchange rates have adverse implications for economic and financial stability. We will monitor exchange markets closely and will cooperate as appropriate.

But it is not just foreign governments and central banks that manipulate financial markets.

If you want to try to make money on the Forex, you had really better know what you are doing, because most “little fish” get swallowed up and spit out.

A number of years ago I actually invested in the Forex and I rapidly learned that it is not a “clean game”.  I discovered that there are industry insiders that openly confess that several of the “big fish” in the industry brazenly “stop hunt” and regularly trade against the positions of their clients.

Not that stock markets around the globe are much better.  It would take thousands of pages just to document the well known cases of stock manipulation and insider trading.

And don’t get me started on the precious metals markets.  As I have written about previously, very compelling evidence of manipulation in those markets has been handed to the U.S. government and they have essentially done next to nothing with that evidence.

Not that people don’t make money in the financial markets.  Some people make a ton of money.  But those people are experts and they know how to survive in a “dirty game”.

If you are an amateur, you really need to think twice before diving too deeply into the financial markets.  If you think that you can jump into the Forex or the U.S. stock market and “get rich quick” you are in for a rude awakening.

The financial markets have become a game that is designed to funnel money to the “sharks” and to the “big boys”.  Once you put your money into the game, the odds are that “the house” is going to win.

For those that still do believe that the financial markets are a good way to build wealth, at least be prudent enough to get some sound financial advice.  There is no shame in having a financial professional invest your money for you.

But it is no guarantee of success either.  The truth is that millions of Americans have experienced a lot of pain in the financial markets over the last few years.

As the global economy becomes even more unstable, the manipulation of the financial markets by governments and by central banks is going to become even more dramatic.

As financial markets around the world crash and rise and crash again a whole lot of people are going to be wiped out financially.

You don’t have to be one of them.

Shocking New IMF Report: The U.S. Dollar Needs To Be Replaced As The World Reserve Currency And SDRs “Could Constitute An Embryo Of Global Currency”

The IMF is trying to move the world away from the U.S. dollar and towards a global currency once again.  In a new report entitled “Enhancing International Monetary Stability—A Role for the SDR“, the IMF details the “problems” with having the U.S. dollar as the reserve currency of the globe and the IMF discusses the potential for a larger role for SDRs (Special Drawing Rights).  But the IMF certainly does not view SDRs as the “final solution” to global currency problems.  Rather, the IMF considers SDRs to be a transitional phase between what we have now and a new world currency.  In this newly published report, the IMF makes this point very clearly: “In the even longer run, if there were political willingness to do so, these securities could constitute an embryo of global currency.”  Yes, you read that correctly.  The SDR is supposed to be “an embryo” from which a global currency will one day develop.  So what about the U.S. dollar and other national currencies?  Well, they would just end up fading away.

CNN clearly understands what the IMF is trying to accomplish with this new report.  The following is how CNN’s recent story about the new IMF report begins….

“The International Monetary Fund issued a report Thursday on a possible replacement for the dollar as the world’s reserve currency.”

That is exactly what the IMF intends to do.

They intend to have SDRs replace the U.S. dollar as the world reserve currency.

So exactly what are SDRs?

Well, “SDR” is short for Special Drawing Rights.  It is a synthetic currency unit that is made up of a basket of currencies.  SDRs have actually been around for many years, but now they are being heavily promoted as an alternative to the dollar.

The following is how Wikipedia defines SDRs….

Special Drawing Rights (SDRs) are international foreign exchange reserve assets. Allocated to nations by the International Monetary Fund (IMF), a SDR represents a claim to foreign currencies for which it may be exchanged in times of need.

The SDR is a hybrid.  SDRs are part U.S. dollar, part euro, part yen and part British pound.  In particular, the following is how each SDR currently breaks down….

U.S. Dollar: 41.9%

Euro: 37.4%

Yen: 9.4%

British Pound: 11.3%

Now there are calls for other national currencies to be included in the basket.

Russian President Dmitry Medvedev has publicly called for the national currencies of Brazil, Russia, India and China to be included in the SDR.

In January, the Obama administration said that it fully supports the eventual inclusion of the yuan in the SDR.

So yes, it looks like we are definitely moving in the direction of the SDR becoming a true global currency.

But is this a good idea?

Globalist organizations such as the IMF say that having a true global currency would facilitate world trade, it would make currency wars less likely, it would stabilize the global economy and it would make the rest of the globe less reliant on what is going on in the United States.

In fact, there is a lot of discussion in international financial circles that oil should be traded in SDRs rather than in U.S. dollars.

In a recent interview, IMF Deputy Managing Director Naoyuki Shinohara even suggested that the IMF may actually consider issuing bonds that are denominated in SDRs.  Apparently the goal would be to promote the use of the new “currency”.

But once again, it is important to remember that the IMF does not see SDRs lasting forever either.  Rather, the IMF considers the SDR to be an “embryo” from which a true global currency could emerge.

An IMF paper entitled “Reserve Accumulation and International Monetary Stability” that was published last year even proposed that a future global currency be called the “Bancor” and that a future global central bank could be put in charge of issuing it….

“A global currency, bancor, issued by a global central bank (see Supplement 1, section V) would be designed as a stable store of value that is not tied exclusively to the conditions of any particular economy. As trade and finance continue to grow rapidly and global integration increases, the importance of this broader perspective is expected to continue growing.”

In fact, at one point the IMF report from last year specifically compares the proposed global central bank to the Federal Reserve….

“The global central bank could serve as a lender of last resort, providing needed systemic liquidity in the event of adverse shocks and more automatically than at present. Such liquidity was provided in the most recent crisis mainly by the U.S. Federal Reserve, which however may not always provide such liquidity.”

Yes, unfortunately this is what the IMF really has in mind for all of us.  A one-world economic system with a one-world currency and a one-world central bank.

Is that what we really need?

A “global Federal Reserve” that dominates the currency and the economy of the entire planet?

At least with the U.S. Federal Reserve there is hope that someday the American people can convince Congress to shut it down.

A “global Federal Reserve” would not answer to anyone.  Individual nations could attempt to pull out, but then they would potentially be isolated from the rest of the globe and potentially cut off from world trade.

That may sound very far-fetched now, but that is the direction we are headed.

And shifting away from the U.S. dollar as the reserve currency of the world would be disastrous for the U.S. economy.

Right now the fact that the U.S. dollar is the primary reserve currency of the world is one of the only things holding it up.  If you took that support away the U.S. dollar could end up collapsing quite quickly.

Let us hope that the American people wake up and start insisting that we want no part in a global currency.  If we ever allow a world currency to start replacing the U.S. dollar to a large extent, we will lose a great deal of our economic sovereignty.  Not that we haven’t lost most of it already, but at least if we are still using our own national currency there is a greater chance that we can reclaim it.

What the IMF is proposing right now may seem very innocent, but the long-term consequences of going down the road they want to put us on could potentially be absolutely catastrophic.

The American people need to send a very clear message to their representatives in Washington D.C…..

#1 We do not want a one-world economy.

#2 We do not want a one-world currency.

#3 We do not want a one-world central bank.

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