Forum Replies Created
- APerry wrote:
The US Gov creates money by selling IOU's to the Federal Reserve as bonds and receives money in return, which it spends, the Fed can either keep these or on sell them.
I pretty much agree with everything you've said although the above sentence is a bit fury.
Treasury flogs bills, bonds and notes to just about anyone who'll buy them. The Fed intercedes to manipulate price or in a worse case scenario becomes the buyer of last resort. Fed monetisis that debt (gives money to treasury to pay for government services) and holds the bonds on it's balance sheet.
Quote:You are correct that a lot of the QE is this money being used to buy various securities (ie its not going into general circulation as I stated), but you are forgetting that there is another side to the ledger, the bond holders. These bonds have to be redeemed at some stage by real money and if the Fed can't on sell the bonds then they have no real value and their price will plunge making the money paid to redeem the bonds worth less and so the currency generally worth less.That's not quite true. The Fed has been expanding its balance sheet exponentially since the GFC. It bought bucket loads of MBS and other toxic debt from TBTF institutions in an attempt to provide liquidity and bolster balance sheets. Today it buys $85B/mth of these things in an attempt to kick start the building and housing industries. It buys something like 70% of of all T bills, bonds and notes. Treasury simply issue new and bigger bonds to roll over maturing ones (to fund govt deficits).
Fed balance sheet issues are or will be almost impossible to resolve if not already. Any attempt to sell this stuff would crush the US economy (via rising interest rates).
What's also interesting is their $9T or so in secret off-balance-sheet transactions that no one wants to talk about.
The above graphs throw up another interesting aspect of interest. How does this affect debt/wealth on a per capita basis. in other words what will be the populations ability to spend be going forward.
The following graphic suggests individual spending power could be overcome by huge debt loads.
This doesn't imply that massive amounts of debt will be taken on but that the population base servicing current debt loads will decrease significantly. This adds weight to the argument that the Japanese tax payer will face crushing debt servicing loads unless the Japanese government can find a way to restructure its debt liabilities.
This illustrates why simply increasing sales tax rates will not work. They're going to have find other ways to increase revenue from an ever declining tax payer base which suggests increasing taxes on tax payers will be self defeating. Taxing businesses is also a no win situation as Japans competitiveness continues to decline. The BOJ's attempts at currencie devaluation to help exports is generating unintended consequences such as capital flight.
All that kinda puts the next graphic into perspective.
The income to expenditure gap just keeps getting wider. I wonder how far you can stretch a rubber band before it snaps?
Ignoring Japans immediate financial problems for the moment one has to wonder where the RE market will get its demand from given two significant population issues are deteriorating at an accelerating rate namely a declining population coupled with an aging population.
zmagen wrote:In your favorite style and spirit of linking to graphs, articles and presentations that support your theories, here are a few of our own, that we've been collating for new and existing clients over the past year –http://www.nippontradings.com/japan-real-estate/busting-japans-impending-debt-crisis-myth/ ("business insider")
http://www.nippontradings.com/japan-real-estate/japans-miraculous-economy/ ("mindful money")
http://www.nippontradings.com/japan-real-estate/japan-economy-set-to-soar/ ("Reuters")
Interesting articles from the point of view they almost always ignore the elephant in the room.
You have a debt problem. Up until now you've been able to fund that debt to maintain the country with savings (and ZIRP) and the ability to maintain an export surplus. The export surplus has gone as trading partners around the world grapple with their own debt problems after 30 years of a credit fueled spending spree. The cheap money is or has come to an end. The next generation of borrowing (to fuel a system that requires 40% of it's budget go to just servicing cheap debt) will be considerably more expensive than in the past.
The immediate challenges facing Japan are how does it cope with an export and subsequent income decline, remediate the Fukushima and associated nuclear power problems, maintain the status quo in a declining/aging population as pension demand accelerates and deal with a mounting debt problem that threatens to swamp them.
Quote:there are more, of course, but the main point is, as others have pointed out above, that Japan has quite a few other ways of dealing with the current state of affairsGreat! What are they because as Kyle Bass points out quite clearly the discussions he's had with the leaders of Japanese financial institutions have all but admitted they have no idea how to solve this problem. They're out of bullets
Quote:– and the "hasn't made a difference for the last two decades" is really a double-edged sword – according to this rationale, Japan should have dived nose-first into currency collapse and become India or myanmar a decade or two ago, rather than go into a mild recession and come out of it as resilient as ever – yet somehow, miraculously, they're quite far from it.Enron looked great just before it collapsed
Quote:yes, I'm biased, in the sense that I'm a firm believer in the Japanese people and their resiliency, creativity and hard-working, sincere mentality, and believe that they'll find a way to persevere (even without adopting IMF policies, imagine that).Societies almost always do, however, many experience considerable pain and dislocation during this coping period.
Quote:What this actually is, i love to read assumptions about, but leave to wiser folk than myself (the links above point to a few options, as have the comments on this thread).The links above do not point to options or solutions that haven't been tried before a hundred times with no affect. In fact most of the so called solutions involve fudging the figures and CB balance sheet expansion. In every case the situation has deteriorated a degree further.
So here's a challenge for you Ziv. Find the readers an example of Japanese government and or BOJ intervention that has or will turn this impending debt crises around.
Quote:as for me, I deal in real-estate, and advise my clients to always be positioned with ample reserves and minimal leverage, so that they're able to take advantage of current conditions, and not play with money they'll need back in a hurry (unpopular concept for property investments, I know, considering so many folk out there try to liquidate all their belongings at the first sign of price drops and lose their pants in the process, or leverage themselves to kingdom come and lose everything when the **** hits the fan). Incidentally, this happens in any country at some point in time over every decade or two – I'd rather be in Japan when this happens than any other place in the world, any day of the week. They know how to deal with crisis without resorting to doomsday and Armageddon scenarios far better than us whiners and selfish "save yourself, screw all others" in the westSound advice and the last place I'd want to be on earth if things go south is the US or Europe.
Quote:As a side note, I hardly believe that someone who, according to their own testimony firmly believes in hoarding precious metals and their related stocks and industry assets (which someone less polite might label "dealing in fear and paranoia") has any interest in making any other investment seem attractive, and would most likely do their best to continuously convince anyone who'll listen that "the worst is yet to come, beware the impending global meltdown, it's only just begun", etc etc.Ziv it's standard strategy in Investing 101 – hedge your bets. There isn't a market that isn't rising and falling like a yo yo anywhere that I'm aware of. It has to be one of the craziest and least predictable times to be an investor in anything. That in itself tells a story.
Quote:but we already had the pessimistic vs optimistic vs realist discussion, maybe we can save ourselves the trouble this time, since we're both not likely to change our tune in this regard.It's no fun debating with someone who agrees with you. Where would I be with out you.
JacM wrote:Ipeople don't like to buy shoes that have been on someone else's skanky feet.ROFL… this girl was far from shanky. All I could do to stop my boys drooling down their shirts all day. They kept going missing in action through out the move(s) we did for this client. Of course being married I was hardened to this type of distraction.
PS: Shoes were still in their boxes.
Jpcashflow wrote:My mentor admitted that the economy is in trouble in Japan and he has had to slash a high number of employees hours from Full time to Part time, Thankfully being such a large company he gets great support from the Japanese government.
But he made a good point, Should fear stop him? Nope he is always looking at ways at improving his business and on the other hand his real estate business remains pretty steady.
Couple of points Jo.
- The primary focus of the thread is; how do foreigners with Japanese assets play this market through this particular time frame? Your mentors situation is interesting and certainly reinforces the deteriorating situation in Japan from an insiders viewpoint but he won't be exposed to FX risk.
- Should fear stop him? In real terms he has little choice but to continue to manage the situation. Fear shouldn't be allowed to play a part in one's decision making. The objective should always be to take an honest and open appraisal of any situation whether it be improving or deteriorating and make plans accordingly.
There are 2 major concerns with investing in Japanese RE namely;
- deteriorating economics which eventually begin to tell on property values if it isn't already and,
- a public policy of substantially devaluing the Yen.
This new govt headed by Abe was a disaster last time and given their nationalistic leanings I have little doubt things will flow along the same lines as the last debacle especially where China is concerned.
Commentators see Japan as "a bug looking for a windscreen" and "a slow motion train wreck". Can't argue with either of those assessments.
A couple of graphs to enlighten the readers:
The problem with the following graphic is not that Jpn is top of the pops but that the rate of debt accumulation by other economies has jammed those countries into a corner meaning their ability to support global growth and assist Japan to somehow survive a little longer is fast running out of steam. The reality is that if you have a huge debt load serviced by an export led economy then you absolutely need a healthy global economy to support you. That's no longer the case.
… and as things continue to go south the ability of punters to buy into the property market has taken somewhat of a battering over the years.
Given that property is usually considered a long term play I can't for the life of me see how the Japanese RE market could be considered a sound investment. I have problems even considering it viable as a speculators market
