Posted by WARREN MOSLER on May 25th, 2009
Starts off good and then goes bad.
by Ambrose Evans-Pritchard
May 22 (Telegraph) — Perhaps most surprising is that Japan fell in 1998, though it was by then
the world’s top creditor with more than $1.5 trillion of net foreign assets
(now $3 trillion). Lender abroad, it is a mega-debtor at home, the result of
Keynesian pump-priming to fight perma-slump. The stimulus vanished into
those famously empty bridges in Hokkaido.
“The Japanese didn’t take the downgrade seriously,” said Russell Jones, of
RBC Capital, a Japan veteran from the 1990s. “They didn’t think they would
have any trouble funding their debt.”
They were right. Yields on 10-year bonds fell to 1pc by the end of the
decade, and to 0.5pc in the deflation scare of 2003 â€“ confounding those who
expected Japan’s emergency stimulus to stoke inflation and push up yields.
Eisuke Sakakibara, then the finance ministry’s “Mr Yen”, was insouciant
enough to swat aside the Moody’s downgrade as an irrelevance. “Personally, I
think if Moody’s continues to behave like that, the market evaluation of
Moody’s will go down,” he said.
Japan had a crucial advantage: its captive bond market. Some 95pc of
government debt was held by Japanese savers or the big pension funds.
Not! Does not matter. The funds to buy government securities ‘come
from’ the government deficit spending.
Deficit spending adds reserve balances at the central bank,
buying govt securities reduces reserve balances at the same central bank.
It is all a matter of data entry by the central bank its own spread sheet.
The foreign share of UK public debt has risen from 18pc to 34pc over the
past six years. The central banks of Asia, Russia and emerging economies
like gilts because they offered 1pc extra yield over bunds. This was the
“proxy euro” trade.
Does not matter.
“We’re far more vulnerable than Japan ever was,” said Albert Edwards, global
strategist at SociÃ©tÃ© GÃ©nÃ©rale.
“Japan had a huge current account surplus
and a strong currency. The UK is a deficit country, at risk of a sterling
Yes, the currency might go down, but seems to be doing ok for the moment!
Years of UK macro-mismanagement have dragged the UK economy to the
edge of a precipice.”
As the BOE’s Charles Goodhart once responded,
Yes, they have been telling us that for 300 years.