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I truly enjoyed that.
Do you have any views on the Good Ol' USA, the greastest debtor nation on
the face of the earth ?
I do. Read the section on the coming depression in the economics section
of
my web site.
http://www.advsoftware.com
Regards,
James
> ----- Original Message -----
> From: "James Smith" <JSmith@xxxxxxxxxxxxxxxxx>
> To: <jptaylor@xxxxxxxxxxxxxxx>
> Sent: Monday, June 26, 2000 9:01 PM
> Subject: The only thing "Divine" about Japan is the Wrath that is coming
> down.
>
>
> > The only thing "divine" about Japan is the "wrath" that is coming
> > down on it. Mori-san may have bungled in calling Japan a Divine
> > Nation, but perhaps there is such a thing as "Divine Wrath"which
> > comes from financial mkts that have lost patience. JGBs & JPY
> > reacted to a narrow win by the LDP in less than charitable manner.
> > The election marks a Major Turn for both JGBs & JPY. The market
> > will no longer tolerate the "fiscal pork" that the LDP has so
> > often resorted to. Worries about a credit downgrade are well-
> > founded. No matter what the LDP does, the JGB ponzi is coming
> > undone. Best course is to allow the Yen to devalue, paying back
> > the humongous JGB debt in funny money. Devaluation will help
> > exporters and perhaps also spark a domestic revival...because
> > consumers who don't spend their savings....lose it to inflation.
> >
> > Many analysts have forecasted an ever-stronger
> > Yen as the BOJ is now threatening to abandon
> > the Zero Rate Policy. We agree that abandoning
> > the Zero Rate Policy should act to strengthen the Yen,
> > but this will not be the only influence on the Yen.
> > Japan is sitting on a ton of debt which they have no
> > chance of ever paying back....unless they devalue
> > and pay back with funny money. . Debt is now 130% of GDP.
> >
> > Note that an opposition Democrat nearly lost his seat
> > in the election because he was a major proponent of
> > "raising taxes" to solve Japan's problems. Rest assured
> > other Japanese politicians saw this and took notes.
> > If "raising taxes" is risky to your political career, perhaps
> > a hidden tax thru massive Japanese yen devaluation
> > would be easier to foist onto a rather unforgiving
> > electorate.
> >
> > But even if they politicians can fool the public, they can't so
> > easily fool the financial markets.
> >
> > Has everyone forgotten how the markets disciplined Sweden
> > for relying too heavily on debt-financing to continue their
> > welfare state utopia? Has everyone forgotten what happened
> > to Canada and their similarly socialist agenda? The markets
> > can be ever so cruel to air-heads.
> >
> > Some may argue that because Japan does not rely on external
> > financing to the same degree as Canada or Sweden, that they
> > can get away with it. And they'd be right...for a while. In fact,
> > it would be very hard indeed for any govt that borrows from abroad
> > to get away with having a debt ratio of 130% of GDP. But even
> > if Japan relies mostly on domestic financing, this is still a bubble.
> > As most sensible people realize, every bubble has to pop.
> > Just as the Nasdaq bubble has popped and may even now
> > be setting up another sharp leg down, the same may be true
> > of Japanese Government Bonds.
> >
> > Certainly a Credit Downgrade from Moody's or the S&P would
> > pack a punch. If the credit rating agencies don't downgrade
> > Japan, they are simply not doing their job. They will lose
> > credibility in the financial markets. How can they allow one
> > country to carry such a huge debt load and yet still give it
> > a AAA rating without any hint of discipline. These agencies'
> > ratings may lose any meaning to the markets is they delay
> > judgment for too much longer.
> >
> > It may very well be that the BOJ will be forced
> > to raise Short Rates just to control the speed of a coming
> > Yen Slide. Of course, it is equally possible that raising
> > short-rates will add to the problem. From an investor's
> > point of view, "Why take a lousy 1.7% on a 10 year bond
> > when you can get an ever rising rate of return, short term
> > with less risk?
> >
> > If the fear of a Credit Downgrade causes JGBs to begin
> > to slide, this will impact the Nikkei negatively. Higher
> > longterm rates will slow the economy and send the
> > Nikkei into a FreeFall.
> >
> > A FreeFall in the Nikkei will force a devaluation of
> > the Yen because the only way Japan can combat declining
> > stock prices is to devalue the Yen so that Japanese exporters
> > can sell more goods overseas. This too may become harder
> > if the US and Europe slow down. Japan will have to devalue
> > the yen all the faster just to maintain current exports. US
> > consumers are spending a greater proportion of their
> > disposable income at the gas pump. This means they
> > have less left over for that Sony Wega TV, that Toyota
> > Camry, or that Toshiba stereo.
> >
> > If the trade deficit between the US and Japan hit a record of
> > over $7 billion for the month of April and yet the Japanese
> > economy is still weak, what exactly do you suppose will happen
> > once the US slows down? "Divine Wrath" is what I'd call it.
> >
> > You have the makings of a vicious cycle.
> >
> > In a previous article I mentioned that by holding short term
> > rates at Zero, Japan has chosen to bankrupt the Life
> > Insurance companies in order to save the banks. It
> > now appears that the Life Insurance companies are
> > on course to be devastated.
> >
> > In a recent FT article ("Japanese Life Groups Suffer Falls
> > in Income", June 5th), we see that indeed the plain facts
> > are that these institutions have managed to lose money
> > on nearly everything they invest in.
> >
> > They are suffering the effects of what the FT calls a
> > "negative spread"--the gap between the return on
> > investment assets and the pay-outs guaranteed to
> > policyholders.
> >
> > I've talked about this problem before, but it is important
> > to realize that the problem is only getting worse.
> > These same Life companies that have lost money
> > on their domestic investments due to the "negative
> > spread" have also lost money on foreign investments
> > due to a stronger yen.
> >
> > They now believe the correct course of
> > action is to refrain from investing overseas. Most
> > of them are increasing their investments in JGBs
> > and other domestic bonds. Why?
> >
> > This is what we call the "deer in the headlights"
> > phenomenon. They have lost money so often due
> > to exchange rate changes, that they now have
> > no appetite for risk. But by piling into JGBs at
> > the top of the market as the Moody's and S&P
> > get ready to downgrade Japanese debt, are
> > they not adding to their problems?
> >
> > Have the Life Companies in Japan become a
> > contrarian indicator?
> >
> >
> >
> > Now let's see how this all adds up on a
> > more personal level.
> >
> > You are a "Japanese SalaryMan" making
> > a lousy wage but at least you have a guaranteed
> > position at the company for life. Your wife
> > is nervous that you are going to get fired
> > because she rightly figures that if you are
> > as useless at the company as you are
> > around the house, you'll be the first to get
> > the axe. So what does she do? She puts
> > even more of your savings into the Post
> > Office even though the current return is
> > less than 1%. In fact, by socking away
> > so much money, your wife as well as
> > every other housewife in Japan, is causing
> > the Japanese economy to contract.
> >
> > So when the Nikkei tanks and the economy
> > spins downward because the idiots at the
> > BOJ decide "now" is the time to raise
> > rates (slowing the economy), you do in
> > fact lose your job. The BOJ quickly
> > realize that it was about as wise to raise
> > rates at this juncture as it was for the JPN
> > govt to raise the consumption tax in 1997,
> > but the damage is already done. The
> > Nikkei has gone into a Mexican Swan
> > Dive. The BOJ quickly announce that no more rate
> > hikes are planned, but the market doesn't
> > trust them, and continues to punish the
> > Nikkei. The BOJ then begin to add
> > monetary stimulus to the system...quite
> > aggressively to make up for the stupidity
> > of their recent rate hike.....and this only
> > causes the Yen to slide.
> >
> > Your wife goes to the Post Office to get
> > her savings, but she can't because
> > about 100 million other Japanese had
> > the same idea at the same time. No
> > one wants to keep their money in Yen
> > because everyone knows it will become
> > monopoly money.
> >
> > Your wife rants at you non-stop and
> > you are tired of dressing in your suit
> > and leaving for the office job that
> > no longer exists to sit on a park bench.
> >
> > You think about killing yourself, but
> > you don't have a gun and you don't
> > like pain. On the way
> > home you have a heart attack.
> >
> > Your wife is sorry that you are dead,
> > but immediately calls the Life Insurance
> > company to collect on the insurance
> > plan you had taken out.
> >
> > The insurance company folded
> > right before your wife called. Once
> > again your wife is pissed off at you.
> > If you had only died a few days earlier
> > she'd have gotten the life insurance
> > money. But it turns out that plenty of
> > other wives' husbands died before
> > you did, which caused the Life Company
> > to fold. Call it "negative payout" if it
> > makes you feels better. She cannot
> > collect on the insurance until the govt
> > sorts outs the mess. The govt's
> > brilliant idea is to saddle any good
> > Life Insurance companies with the
> > obligations of the bankrupt ones....
> > kinda like what they did with the banking
> > crisis. Mega-mergers to create
> > a bigger mess.
> >
> > Because of a near total loss of
> > confidence in the government, new
> > elections are called for.
> >
> > But before the election takes place
> > an earthquake hits Tokyo.
> >
> > With the chaos comes opportunity....
> > for some. Ishihara-san (current Mayor
> > of Tokyo) manages to seize control
> > of the govt in what effectively becomes
> > Marshall Law.
> >
> > China and the rest of Asia are none
> > too pleased to see a rabid nationalist
> > like Ishihara-san in charge of Japan.
> > Menacing words are exchanged and
> > a new round military defense spending
> > in Asia turns into a global arms race.
> >
> >
> > Your wife feels bad about you dying,
> > but she truly feels you're the lucky one
> > to have died before things got really nasty.
> >
> > And if you are not a Japanese Salaryman,
> > do you honestly believe you will go unaffected
> > by these events???
> >
> > Have a nice day.
> >
> >
> >
> >
>
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