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What's the end-game here? Obviously their sovereign debt level is enormous too, but it's also mostly purchased by the Bank of Japan. It's a ponzi scheme that's

• 21 11y ago
  Shorting the yen, meaning betting that the currency will collapse has been an obvious trade for decades. This trade is also called the widowmaker :) There is a long trail of bodies in it's wake... As always, timing is everything. http://www.businessinsider.com/japanese-30-year-hits-new-low-2016-3 http://www.businessinsider.com/japanese-30-year-hits-new-low... http://www.bloomberg.com/news/videos/2016-01-14/the-widowmaker-trade http://www.bloomberg.com/news/videos/2016-01-14/the-widowmak...
  • dopamean 11y ago
    I think that's why there's a saying about the market staying irrational longer than you can stay solvent.
    • jsprogrammer 11y ago
      Wouldn't a market always act rationally, by definition?
      • yoha 11y ago
        You are confusing two things. Here are plausible definitions: * market: system for trading assets between willing participants * economics: modeling the behavior of markets assuming rational behavior of participants The definition of markets has nothing to do with rationality.
        • jsprogrammer 11y ago
          Market: participants freely exchange goods Rational: subject acts according to their own utility function Freely acting is equivalent to rationally acting, which is precisely where markets can exist. E: Downmod without leaving a comment. Classic HN.
          • civilian 11y ago
            Not a downvoter, but: Freely acting != rational acting. People often take actions on bad information, or on bad analysis of good information.
            • jsprogrammer 11y ago
              I guess the problem is that I'm the only one in this discussion that has offered a definition of rational. Taking action on bad information or analysis may be rational for some utility functions.
              • civilian 11y ago
                Yeah, I was thinking about that after I wrote my comment. I suppose that rational could just be defined as "what a person does", since they must have been trying to optimize for _something_. But there must be some universal optimial for a given utility function, right? Like: choosing to buy a BMW when your utility function is a looking for a cheap car is just simply irrational or a mistake. Here's a good one: All of my high school teachers (and my parents) encouraged me to study biochemistry in college. They assured me there'd be a good career for me afterwards. But they were kinda wrong, and I had executed my utility function (what's a major that will give me interesting and good work) on bad input. I acted rationally, but would you say that my decision was a rational one?
                • jsprogrammer 11y ago
                  It was rational because you valued what your teachers and parents thought. All value is subjective, so you cannot define a universal optimum. To say whether something was a rational decision requires evaluating the subject's utility function at the time of the decision. This is something only the subject can do. Trying to judge something after the fact is very difficult. What good input could you have used when you made the decision (or while you continued to execute it)? Making mistakes in reasoning and/or lacking information that would allow for making a decision at a higher perceived utility does not make one irrational. An irrational decision is one where an action determined to have the most utility is not taken.
      • gefh 11y ago
        Unfortunately it's often rational to act irrationally.
      • ArkyBeagle 11y ago
        Not so much.
      • alecbaldwinlol 11y ago
        Without perfect information, market participants can act irrationally. This is why Ethiopian farmers sell their coffee beans for pennies/kilo, while Starbucks charges $5/gram (made up numbers).
        • jsprogrammer 11y ago
          Why would Ethiopian farmers sell for so little if they could sell for more?
          • gherkin0 11y ago
            Some possibilities: * They don't know that their beans can actually sell for so much * They don't know how to sell their beans for higher prices (e.g. they don't have access to the right middlemen) * They aren't coordinated enough and undercut each other when dealing with the middlemen. * Starbuck's premium prices may have little to do with the beans themselves
            • jsprogrammer 11y ago
              None of those would necessarily indicate that the farmers are acting irrationally in the previously described exchanges.
        • civilian 11y ago
          This is not a good example. Distribution, branding and maintaining retail outlets make most of the cost. Ethiopian farmers can't sell their beans for dollars because: * They haven't shipped them across the ocean * They don't have warehouses to store them in * They don't have a retail store to sell them in * Nobody knows the quality or consistency of Ethiopian Joe's coffeebeans, but they know that Starbucks is consistent good. A better example of irrational acting is that: MLB tickets can be sold for hundreds of dollars, even though professional baseball is the most boring thing to watch, we barely have good enough eyes to see what's happening from that far away anyway, and you'll have to pay 2x for anything you eat or drink. Also Beanie Babies. Buying beanie babies and tulip bulbs was really irrational acting.
      • josephlord 11y ago
        Only if mainstream economic theory was correct, unfortunately it is deeply flawed and much of it depends on unrealistic (and at times inconsistent) assumptions.
• pjc50 11y ago
  A gradually sinking yen might be a boon for exports. Its effects would depend on the balance of trade at the time. But really the main reason markets aren't bailing out of the yen, as with the dollar and euro, is that there's a real shortage of better places to go. Much of the developed world is at near-zero interest rates - negative in a few places. The developing world is not stable enough to take in much investment.
• forgetsusername 11y ago
  >the yen is worthless In what way is it worthless? It's not like Japan has zero productive capacity or real assets.
  • unknown_apostle 11y ago
    It will be worth a lot less once the majority of current yen holders become convinced that the Japanese government can no longer pay for its expenses by external borrowing or by taxing those assets.
• cubano 11y ago
  Looking through the history of financial crisis, the end-game is pretty obvious. Short-term, its a win for 401k holders and retirees so politically its an easy sell. However, sooner or later, all the dollars and yen that the government simply prints to "buy" these securities will cause an inflationary spiral that will lower the standard of living for the working classes, although the bankers and politicians who created the programs will easily dodge those effects due to their wealth and influence. An interesting article on quantitative easing... http://www.ft.com/cms/s/0/031b49ec-c415-11e4-9019-00144feab7de.html http://www.ft.com/cms/s/0/031b49ec-c415-11e4-9019-00144feab7...
  • runT1ME 11y ago
    I disagree that the correct term is 'dodge'. One argument against inflation detractors is that Inflationary growth of the money supply helps those who have debt the most. However, that doesn't end up being the working class, the rich are much more heavily leaveraged into assets that are protected against inflation. Inflation ends up being a wealth transfer from the working class to the rich.
    • cubano 11y ago
      > Inflation ends up being a wealth transfer from the working class to the rich. Absolutely, and while my use of the word "dodge" might have been sloppy writing, your analysis of it is spot on. But also, it is almost universally agreed that inflation in the 3-4% range is healthy for an economy, the eventual effect of governments printing money to pay current obligations and/or securities to "prop-up" Wall Street is a much larger rate, like 20%-30% per year Just read the histories of South American government defaults or look at Greece now for a primer on the eventual endgame for out of control debt.
    • ArkyBeagle 11y ago
      Deflation ( or low inflation ) works for the rich moreso because who do you think holds all that debt? Mild inflation "ages out" the stock of debt. We think 4% is a good rate of inflation for a recovery ( if a bit low ) but we're unable to maintain even 2%. This is incredibly strongly correlated with wealth inequality.
• unknown_apostle 11y ago
  Yep. The yen will pretty much collapse. That will coincide with the sudden return of a highly non-linear phenomenon known as general price inflation. It's not like it hasn't happened before anywhere in the world. The exceptional thing is the enormous amount of trust that developed markets have in the central bank's technocratic policies. This trust was built up during 70 years of relatively high stability (and growing complexity and obfuscation of the monetary and financial system). For now the BoJ still has room to abuse this trust and make a mockery of every form of market-based risk analysis, valuation and price discovery. But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets. Japan is ahead of the rest of the developed world in this. The Japanese experiment will put pressure on currencies and interest rates in all other countries who are facing a variation of the same problem. Most important: all this will happen in a country (or world) full of pensioners. Shikata ga nai.
  • Amezarak 11y ago
    > But at some random point of time, the trust will just break. Even in Japan no amount of measures will stop the market's instinct for self-preservation as yen holders flee to other assets. "There will be a financial crisis at some point in the future" is the safest economic prediction anyone can make, any time. Do you have any more precise claims which we can use to evaluate your model of economics?
    • unknown_apostle 11y ago
      The prediction is not "crisis". It's hyperinflation and runaway depreciation of the yen. In terms of duration: I would say they are one regular recession away from this. For the last 5 years I've been saying "next 2 years". Today I'd say 1 year. (I have no actual money involved so this prediction is worthless. But you asked for it...) It was the same with Greece: people had months or even years to yank their money from the bank. The trainwreck was telegraphed way in advance. It's just that nobody did it because they couldn't imagine it. It's a similar psychological process that is keeping Japanese markets disciplined for such a long time. By contrast, in a country like Argentina people have living memories of monetary disasters and they trigger much quicker.
• kaonashi 11y ago
  > It's a ponzi scheme No, it's not. It's intergovernmental debt, it's essentially meaningless. If I write myself an IOU for $1mil, I'm not going to be especially concerned about my solvency.
  • unknown_apostle 11y ago
    You personally could only write yourself an IOU not for US dollars, but for Kaonashi dollars. That's meaningless because nobody will trade you anything in exchange for those Kaonashi dollars. At least I wouldn't :-)
    • ArkyBeagle 11y ago
      I assure you; this is written in good old US dollars.
• andyzweb 11y ago
  >They're not going to default on their own debt since they own it all and can print whatever they need to keep it serviced. I wouldn't discount this possibility entirely. As recently as the late 90's Russia defaulted on their own debt.
  • bmh_ca 11y ago
    > I wouldn't discount this possibility entirely. As recently as the late 90's Russia defaulted on their own debt. The Russians defaulted on debt handed to them during the break-up of the USSR. This is an important distinction in the mind of the Russians; it was not debt issued by Russia for Russia. Shortly before the default on the bonds, the Russians had apparently offered a swap for Russian bonds. Very few people took them up on it, but those who did suffered no write-down. For more reading, check out Martin Gilman's book: "No Precedent, No Plan: Inside Russia's 1998 Default". It gives deep insight into the complexity of the Russian default. Which is all a sort-of aside on your comment, I appreciate. Many countries have gone bankrupt since WW2, at a background-rate of around 2 countries per year. I put together a map visualizing it at https://sovinswm.appspot.com https://sovinswm.appspot.com The reality is that the semantics of "default" mean very different things in different contexts, but generally if the governing law of a debt instrument (e.g. a bond) is that of the country issuing the debt, then the country can "legislate away" their obligations. This may nevertheless have knock-on effects in marketplaces, particularly via contingent or derivative instruments (e.g. credit-default swaps), and hurt the credit rating just much as if there was a technical default. Very few countries have the luxury of being able to legislate away their debts, and even those that do would feel a backlash and ongoing burden remaining in the marketplace. Note that being able to print ones own money and being able to change the law governing the instruments are two different things, though sometimes similar in effect. If you control the law you can change any term of the debt agreement by legislation, for example. If the debt is repaid in ones own currency, one can print currency to satisfy those obligations (as in quantitative easing, or seigniorage). All to say: The Russian example has an interesting caveat, but it is in any case one of many recent events illustrating defaults on debts (which include Greece, Cyprus, Iceland, Argentina, Ecuador, Ukraine, and others). As you can probably tell, I could probably talk about this at some length. :)