(News & Editorial/ Quiet Asian economic crisis about to explode)
A. A Quadrillion Yen And Counting – The Japanese Debt Bomb Could Set Off Global Panic At Any Moment
9 Aug 2013, The Economic Collapse.com, By Michael Snyder
Pasted from: http://theeconomiccollapseblog.com/archives/a-quadrillion-yen-and-counting-the-japanese-debt-bomb-could-set-off-global-panic-at-any-moment
How 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. [Just like in the good ol’ USA and elsewhere. Ponzi Ponzi Bonzaiiii. Mr. Larry]
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.
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B. China’s Banking Crisis Arrives
22 Jun 2013, Breitbart.com, by Chriss W. Street
Pasted from: http://www.breitbart.com/Big-Peace/2013/06/21/CHINA-S-BANKING-CRISES-ARRIVES
Last April, I warned that China is about to suffer the mother of all banking crises, caused by wildly aggressive expansion of bank lending. Now that vicious inflation has forced the communist authorities to slam the brakes on the economy, short term interest rates in China vaulted to 25% and the People’s Bank of China had to bail out one the nation’s banks.
Fear that China may be on the verge of a crisis similar to the collapse of Lehman Brothers in September 2008 caused panic across the globe, sending the value of every stock, bond, and commodity market on earth plunging. But after 5 years of risky lending practices, China seems doomed to suffer a grim period of economic payback.
From a distance, China’s economy seemed to be the poster child of sustainable growth. Government reports showed consistent 9% expansion, double digit retail sales growth, $3 trillion in foreign reserves, and inflation less than 5%. But these statistics masked a dark side as the government instructed banks to finance state-owned enterprises to sell at subsidized producer and consumer prices. Over the last two years, artificial subsidies restricted increases in retail food prices by 24% and retail gasoline prices by 20%.
The real secret-sauce of the “China Economic Miracle” is that although there are 3,800 banks in China, the country’s four largest state-owned banks (Industrial and Commercial Bank, Agricultural Bank, People’s Bank of China and Construction) control two thirds of all bank deposits and loans. Since the Chinese government does not provide adequate social welfare programs and restricts its citizens’ investment options to bank accounts, about 40% of Chinese household income is deposited in these four state-owned banks each month.
The banks then leverage the deposits by 45 times and lend 75% to state-owned enterprises and 25% to real estate development at extremely low interest rates. Although China generated huge exports as the “world’s largest manufacturer” and built impressive infrastructure, the growth is one giant Ponzi scheme where companies are highly leveraged and sell their products below their costs.
As Lee Adler at the Wall Street Examiner artfully pointed out, China “has been undergoing a massive liquidity crunch in recent days as the central bank there maintains a tight monetary policy that has drained reserves from the system this year” to try “to cool massive speculative bubbles.” He points out that the People’s Bank of China injected $240 billion [say to yourself “one quarter trillion”-Mr. Larry] into the banking system in 2012 and then drained only $33 billion so far this year. But with banking leverage of 45 times, China state-owned banks would need to shrink their lending by $1.5 trillion, or 25% of the nation’s annual GDP.
Lee advises that with Chinese companies and banks highly leveraged and desperate for cash, they are selling their foreign stock, bond, and commodity assets to raise cash to meet bank margin calls at home. He warns this selling may send asset prices crashing around the world, triggering more margin calls and sending prices spiraling even lower.
On June 19, Chairman Ben Bernanke surprised analysts when he indicated that the U.S. Federal Reserve may “taper” its efforts to stimulate the American economy through $85 billion in bond purchases each month. With U.S. inflation low and unemployment still over 7%, most analysts were surprised that Bernanke would chose to slow credit expansion. But his real motive is to prevent the U.S. dollar from strengthening if the Chinese currency weakens from an extended liquidity crisis. A stronger U.S. dollar would devastate American competitiveness and cause significant job losses.
In April, Fitch Ratings for the first time since 1999 downgraded China’s credit rating from AA- to A+ as their debt had ballooned to 200% of GDP. Two weeks ago [early June 2013], China’s Everbright Bank defaulted on a $940 million inter-bank loan due to tight liquidity conditions. Charlene Chu, Senior Director at Fitch Ratings commented: “We have not seen increases of credit to GDP of this magnitude in a large country, in a short amount of time, since data has been kept.”
“So usually when we see expansions of this magnitude, it does lead to banking sector problems at some point,” she said.
China achieved spectacular economic growth by exponentially spiking risky bank lending, while shielding their citizens from inflationary price increases through subsidies, paid for with more bank lending. As government tried to shrink lending, it should not be surprising for stocks to crash, real estate bubbles to burst, banks to default, and interest rates to surge. As the people suffer, the flames of social protest may soon ignite.
C. The World Changed And There was nary A Word
17 September 2013, ModernSurvivalBlog.com, by Ken Jorgustin
Pasted from: http://modernsurvivalblog.com/current-events-economics-politics/the-world-changed-last-week-and-there-was-nary-a-word/#more-30015
Image: Time. Facts Global Energy
“The most significant day in the history of the American dollar, since its inception, happened on Thursday, Sept. 6. On that day, something took place that is going to affect your life, your family, your dinner table more than you can possibly imagine…”
The following events took place SEP/2012, and I’m nearly certain that you haven’t heard about it…
Despite that we have just passed the anniversary of the event, and although you may not think you’ve noticed any change because of it… it was a watershed moment – and one which is speeding the decline of the petro-dollar.
“On Thursday, Sept. 6…China made the official announcement. China said on that day, our banking system is ready, all of our communication systems are ready, all of the transfer systems are ready, and as of that day, Thursday, Sept. 6, any nation in the world that wishes from this point on, to buy, sell, or trade crude oil, can do using the Chinese currency, not the American dollar.”
“This has never happened in the history of crude oil. Since crude oil became the motivating force behind our (U.S.) entire economy, and everything in our lives revolves around crude oil. And since crude oil became the motivating factor behind our economy… never, ever has crude oil been sold, bought, traded, in any country in the world, without using the American dollar.”
“Crude oil is the standard currency of the world. Not the Yen, not the Pound, not the Dollar. More money is transferred around the world in crude oil than in any other product.”
“On Friday, Sept. 7, Russia announced, that as of today, we will supply China with all of the crude oil that they need, no matter how much they want… there is no limit. And Russia will not sell or trade this crude oil to China using the American dollar.”
Source: Lindsy Williams quotes via Examiner.com
“Dollar no longer primary oil currency as China begins to sell oil using Yuan”
For the first time since the 1970′s, when Henry Kissinger forged a trade agreement with the Royal house of Saud to sell oil using only U.S. dollars, China announced its intention to bypass the dollar for global oil customers and began selling the commodity using their own currency.
This announcement by China is one of the most significant sea changes in the global economic and monetary systems, but was barely reported.
These duo actions by the two most powerful adversaries of the U.S. economy and empire, have now joined in to make a move to attack the primary economic stronghold that keeps America as the most powerful economic superpower. Once the majority of the world begins to bypass the dollar, and purchase oil in other currencies, then the full weight of our debt and diminished manufacturing structure will come crashing down on the American people.
Are you prepared?
D. CANADIAN BILLIONAIRE PREDICTS THE END OF THE DOLLAR AS RESERVE CURRENCY; WARNS “IT’S LIKELY TO GET UGLY”
17 Sep 2013, ZeroHedge.com, by Tyler Durden
Pasted from: http://www.zerohedge.com/news/2013-09-17/canadian-billionaire-predicts-end-dollar-reserve-currency-warns-its-likely-get-ugly
Beginning with how Kissinger and Nixon enabled the USD as the world’s de facto reserve currency through oil, Canadian Billionaire Ned Goodman explains in the brief but far-reaching clip how it is both inevitable (and rapidly approaching) that the rest of the world will turn its back on the dollar. With China and Russia (among many others that we have detailed in the past) agreeing on non-USD swap terms for energy, the cracks are starting to show and as Goodman details, “in the 1930s, everyone wanted USD (backed by silver),” but today, backed by nothing, “everyone wants to get rid of them.” Buying hard assets is crucial (he has never been more bullish of gold) as we head into a period of stagflation or even high inflation; and as Goodman previously commented “the world is totally upside down right now – it’s completely crazy,” in fact, he adds, “I’m keen on anything that’s going to live with higher inflationary numbers, because I can’t see the world getting out of the problems that it’s in.”
Grab your pre-FOMC popcorn and watch for a brief few minutes as sense is spoken on everything from the reality of the USD reserve currency’s dwindling support, the stupidity of Obama’s Syrian debacle, China and Russia’s deals, the inevitable inflation when “the United States losing the privilege of being able to print at its will.”
Goodman warns – “during this period, it is likely to get quite ugly….” and its all related to politics and money… interest rates and confidence will turn overnight… there is no time to hedge when the truth takes place
He goes on to discuss part-time jobs, the understating of employment, the looming US recession, the US can’t afford higher rates of interest, don’t deserve their bond rating, and will be downgraded…
And previously Goodman’s thoughts (via Financial Post),
Goodman, 75, said in an interview at Bloomberg’s Toronto office Aug. 1. “I’m more bullish on gold now than I’ve ever been.”
“The world is totally upside down right now — it’s completely crazy,” Goodman said, clicking off his Rolex watch and slinking the chain between his fingers. “I don’t know of another time when every country in the world was printing money.”
Goodman said he doesn’t know when inflation will rise or how drastically, but that his investment strategy is a pre-emptive strike against that risk.
“I don’t wait for inflation,” he said. “It’s hard to call, but it’s impossible for me to see the U.S. getting out of trouble without printing more money and it’s impossible to see how Europe survives in the form that it’s in. You look around the world and you say: ‘We’re going to have to have some inflation.’ I want to own assets that are inflation-proof.”
Miners of precious metals are “dirt cheap,” Goodman said.
“I’m keen on anything that’s going to live with higher inflationary numbers, because I can’t see the world getting out of the problems that it’s in.”