4 ms·
It most definitely affects the currency, and the currency of course affects trade. The core difference between internal and external debt - or more precisely d
by ddeck 11y ago
It most definitely affects the currency, and the currency of course affects trade.
The core difference between internal and external debt - or more precisely debt denominated in a country's sovereign currency vs. foreign currency - is that a country can typically always avoid defaulting on domestic debt by printing more money, despite typical "independence" of central banks. Rates on domestic debt can also be controlled in a similar way.
The Japanese Central Bank is currently undertaking a quantitative easing program of gargantuan proportions, which basically means that they create new money every month and use it to buy Japanese government bonds. They are, albeit indirectly, creating money and loaning it to the government, which then uses it to run a large deficit. Government social programs are significant. The effect on the currency has been dramatic, with the JPY depreciating nearly 40% over the last three years versus the dollar. The central is bank is expected by many analysts to expand the program in the near future.
Although the stated intention is to generate inflation, a cynic might suggest that without such massive buying by the central bank, the governments enormous debt load would soon be at risk of becoming unsustainable - JGB interest rates could easily become unserviceable as investors become more concerned.
- Retric 11y agoQE is a separate and complex thing. Without going into M1 vs M2 etc. It creates short term virtual money while bonds are out there at the cost of destroying real money in the long term when there paid back. If you actually want to create currency there better off buying junk bonds that don't get paid back. That or sell the bonds for less than they paid for them.
- ZoeZoeBee 11y agoYou understand the Japanese Central Bank is purchasing Securities (stocks), not simply Bonds like The US Fed did during QE and still does as it is currently rolling over all of the bonds and Mortgage Backed Securities which are maturing
- Retric 11y agoThis has the same issue. Dividends plus any gains when they sell the stocks remove currency from circulation.
- ZoeZoeBee 11y agoNot at all considering the Japanese are using this to fund the nation's pension system, all of that currency goes back into circulation
- Retric 11y ago? That does not sound like QE as it does not add any new money into the system. Unless you mean they create money to buy the stuff, and then give the proceeds to the pension system.
- ZoeZoeBee 11y agoThat is exactly what the Japanese Central Bank is doing, were you unaware? http://www.wsj.com/articles/boj-helps-tokyo-stocks-to-soar-1426065432 http://www.wsj.com/articles/boj-helps-tokyo-stocks-to-soar-1...
- Retric 11y ago"Analysts say the bank’s action has been a significant driver of Japan’s stock-market rally in recent months, combined with hefty purchases by the $1.1 trillion Government Pension Investment Fund." That sounds like there both buying stock, not that there is a handoff between the two. Quantitative easing is specifically something Central Banks do when they buy stuff using money created from thin air. https://en.wikipedia.org/wiki/Money_creation https://en.wikipedia.org/wiki/Money_creation My point, is after a central bank buy something be it stocks, bonds, gold or pogo sticks with money created on the spot they add money to the economy. But, if they sell it for more than they bought them for then even more money is removed from circulation.