Thursday, June 30, 2016
Would you loan these bums money?
Japan’s benchmark bonds are now all yielding less than 0.1 percent for the first time, leading a global surge in sovereign debt, as the U.K.’s decision to leave the European Union threatened to slow growth and keep the Federal Reserve from raising interest rates.
The rally in Japan pushed yields on the nation’s longest debt, the 40-year bond, to 0.065 percent. Australia’s and South Korea’s 10-year yields dropped to unprecedented levels. Treasury prices slipped after yields approached records last week.
Think about this a minute. Every government issued bond in Japan is yielding less .1%. What is even more mind boggling is this applies to bonds that do not come due for 40 years!
Would you loan anyone any money for 40 years for .1%? Especially a government that has exploded their national debt to over 200% of GDP.
Lets think about this for a minute, if you invest $1,000,000 in Japanese debt you will get $1000 per year in interest! That is simply ridiculous but this is the result of central bank intervention into the bond markets. Basically the treasury buys all the government debt with money created out of thin air.
This all seems to be working fine until one day it will not and then Japan will have a currency crisis. People eventually figure out that the government of Japan has no intention of ever paying these debts and is in fact intent on increasing its debt while monetizing them through debasement of the currency.
The same applies to all the western welfare states including the US. The Japanese are just further down the rabbit hole than everyone else.
Forget all the talk about The FED raising rates. As the economy is now slowly getting weaker I expect the turmoil in world markets caused by Brexit to give cover to the FED to abandon its rate raising rhetoric. Expect the next FED action to be a QE4. Holding gold in this situation will be a good idea.