Debt of One Quadrillion Yen? Not a Problem – Bloomberg 08-15-13

Salient to Investors:

William Pesek writes:

A week after Japan’s debt reached the 1 quadrillion yen ($10.28 trillion) mark, yields have actually declined. BOJ Governor Kuroda is winning bondland’s full obedience with two forms of trickery: essentially transferring money via monetary policy from citizens to the government, and outright monetization of public debt. The longer Kuroda gets away with it, the better the chances Abe can pull off his own miraculous feat of deregulating the economy.

Japan has an impossibly large debt load, an aging population and a propensity for political paralysis. Japan’s debt is larger than that of Germany, France and the UK combined. Japan’s 10-yr yields are at 0.74 percent versus 2.76 percent in the US, which prints the world’s reserve currency, has a higher credit rating and a growing population.

Government bonds are the main financial asset held by banks, companies, pension funds, universities, endowments, insurance companies, government-run institutions, the postal-savings system and individuals. Bondholders got the message that it would be in everyone’s best interest to keep a lid on debt yields, accelerating a huge redistribution of wealth from the people to the government.

The BOJ is buying up ever-bigger portions of government debt at auction. If Abe’s big talk of structural reform is not met with action, then Kuroda is creating the biggest bubble in history.

J. Kyle Bass at Hayman Capital Mgmt has been predicting a Japanese collapse since 2010.

Read the full article at  http://www.bloomberg.com/news/2013-08-15/debt-of-1-000-000-000-000-000-yen-not-a-problem.html

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