tag:blogger.com,1999:blog-4102429195693595750.post85271145343995719..comments2024-03-22T05:15:17.042+02:00Comments on Sudden Debt: Interest RatesHellasioushttp://www.blogger.com/profile/03564511281240682625noreply@blogger.comBlogger4125tag:blogger.com,1999:blog-4102429195693595750.post-79172564065936243462007-06-14T21:48:00.000+03:002007-06-14T21:48:00.000+03:00This time no one wants the responsibility for taki...<I>This time no one wants the responsibility for taking the punchbowl away, so the market will eventually sort it out for itself. And the robber-baron market we have right now does not give a farthing who gets hurt.</I><BR/><BR/>Right now, the Yen carry trade looks like a one-way bet. Unless the BOJ shows some backbone it's possible we'll see a currency crisis hit Japan and not the US.<BR/><BR/>It's possible that public debt is so high in Japan that the BOJ <I>can't</I> normalize interest rates without risking the collapse of the government.<BR/><BR/>That would be interesting. The Asian financial crisis act II. <BR/><BR/>I wonder what a currency crisis for a country with a huge trade surplus and a trillion dollars of USD reserves would be like?<BR/><BR/>Would the Japanese government be willing to confiscate the wealth of the world's biggest savers instead of raising taxes and lowering spending? Would the population of Japan be willing to stomach high inflation rates if it meant a soaring asset prices and strong job growth?<BR/><BR/>Of course, I'm pondering this more since I went long yen a couple of weeks ago. :) I figured that 3.3% growth in Japan and .6% growth in the US would impact the Yen. Silly me.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-65667414361553942862007-06-14T19:36:00.000+03:002007-06-14T19:36:00.000+03:00Nothing scares the Fed (and now BOJ) more than a d...Nothing scares the Fed (and now BOJ) more than a deflationary spiral. Call it the Great Depression bogeyman...and this is why Greenspan got so incredibly aggressive with cutting rates in 2001-04. <BR/><BR/>So now we have a runaway debt/asset train, but no one is yet truly serious about pulling the brake cord and causing...a deflationary spiral. For the amount of debt created in the past 5 years rates are still incredibly low across the world.<BR/><BR/>This time no one wants the responsibility for taking the punchbowl away, so the market will eventually sort it out for itself. And the robber-baron market we have right now does not give a farthing who gets hurt.<BR/><BR/>It's jungle economics once again.Hellasioushttps://www.blogger.com/profile/03564511281240682625noreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-80492426710662439632007-06-14T17:37:00.000+03:002007-06-14T17:37:00.000+03:00As evidenced by the historically low spreads acros...<I>As evidenced by the historically low spreads across a wide swathe of risky assets, one can only conclude there is simply too much capital chasing an ever diminishing supply of profit making opportunities.</I><BR/><BR/>The Federal Reserve has created the problem by attempting to take volatility out of the market. Heaven forbid the Federal Reserve ever raise rates more than a quarter point without "telegraphing" it to the markets months a head of time.<BR/><BR/>It's created the perfect scenario for all sorts of leveraged bets. Sub-prime, emerging market, leveraged buy-outs, carry trades, etc.<BR/><BR/>Eventually, all that debt chasing too few returns is going to squeeze all the profits out of the system. The world doesn't have a production capacity shortage, the world has an income shortage.<BR/><BR/>Asian central banks are the main culprits. By competitively devaluing their currencies they steal consumption for additional production capacity.<BR/><BR/>Too much production capacity, high debt levels, and stagnating incomes are a recipe for a deflationary recession.Anonymousnoreply@blogger.comtag:blogger.com,1999:blog-4102429195693595750.post-89422956303371411232007-06-14T10:53:00.000+03:002007-06-14T10:53:00.000+03:00hellasious,I think the movement of the 10 year tre...hellasious,<BR/><BR/>I think the movement of the 10 year treasury rate since 2003 is revealing when looked at in the context of the overall long term downward trend. Unlike past upswings since 1980, since 2003 the 10 year rates upward movement has been a long, protracted trudge.<BR/><BR/>Nor is this phenomena limited to the US. It is being experienced across the developed world. Japan reached the end game a long time ago. It looks to me as if 10 year rates in the US are preparing to break down completely in a final deflationary collapse. <BR/><BR/>As evidenced by the historically low spreads across a wide swathe of risky assets, one can only conclude there is simply too much capital chasing an ever diminishing supply of profit making opportunities. <BR/><BR/>Any thoughts?Anonymousnoreply@blogger.com