Submitted by Tyler Durden.
While the world is watching Europe and the US for signs of imminent decoupling, and now has added China to its insolvency focus list, things in Japan, which is “fine” courtesy of a self-destruct autopilot, are just getting plain ridiculous. As we reported earlier this year, Japan’s marketable public debt, already the largest in the world at $11.2 trillion compared to America’s $10 trillion (of course this assumes the whole SSN sleight of hand is funded, which it isn’t), is due to surpass ¥1 quadrillion any month now (aka the exponential phase). And that’s just the beginning. As Bloomberg reports, “Bond sales to the market will climb to a record 149.7 trillion yen ($1.9 trillion), while the national budget’s reliance on debt for funding will rise to an unprecedented 49 percent in the year starting April 1, Japan’s government said Dec. 24. The government said it plans to sell 44.2 trillion yen of new bonds to fund 90.3 trillion yen of spending in next fiscal year’s budget. It estimates that tax revenue will total 42.3 trillion yen in fiscal 2012, meaning that new bond sales will exceed tax revenue for a fourth year.” In other words, in a world increasingly disconnected form any sort of reality, very soon no taxes at all will be needed: after all each and every government (or uber-union in teh EU’s case, once the imploding Eurozone turns to the final Deus Ex – a fiscal protectorate issuing joining Eurobonds) will simply fund all its cash needs by printing its own money. Naturally, anyone daring to suggest that this is beyond idiotic will be given an MMT 101 manual and/or incarcerated for grand treason. And any last voices of sanity will be promptly muted: “I think the reliance on bonds to compile budgets is reaching its limit,” Japanese Finance Minister Jun Azumi said Dec. 24, after the announcement of the budget plan.
Oh please, as if there is any alternative. Because Japan, just like the US, relies on the Primary Dealer grand repo Ponzi (anyone who still hasn’t read the following presentation from Citi which explains the grand shadow ponzi in exquisite detail, without any academic BS, is strongly urged to do so immediately) scheme to keep the lie afloat: “There is no sign that Japan’s outstanding debt will be reduced,” said Shinji Nomura, chief debt strategist in Tokyo at SMBC Nikko Securities Inc., one of the 25 primary dealers obliged to bid at government-debt sales. “Japan’s lawmakers aren’t serious enough. Europe’s debt crisis isn’t a fire on the other side of the river.” End result: near record low interest rates: “Japan’s benchmark bond yield is set to end the year below 1 percent, the second-lowest among developed bond markets, as the nation’s current-account surplus makes it a haven from Europe’s financial crisis.”
So somehow a “current account” surplus makes unprecedented ponziness ok. But yes, Shinji is absolutely right: neither Japan’s, nor anyone else’s public debt will ever be reduced as at this point the best holders can hope for is the debt to keep rolling, albeit at ever lower rates due to the exponential rise in gross notional, where even the smallest uptick in interest rates will bring the whole house of cards tumbling down.
In other news, and to all the neo-Keynesians out there, we post the following thought experiment: according to the head priest economic growth derives from debt issuance. And since apparently every country (yes, yes, that has its own currency) can issue infinite amounts of debt, why doesn’t the US and Japan (and the EU post Eurobonds), simply announce it will monetize, aka print, an infinite amount of debt tomorrow? Shouldn’t that lead to global GDP promptly rising by infinity %? Or is there an actual problem with this hypothetical scenario which takes current debt trends to their ludicrous extreme.
As for Japan, more from Bloomberg:
The cost of insuring Japan’s bonds against default climbed to the highest in 2 1/2 months last week. Five-year credit- default swaps tied to government bonds rose to 143 basis points on Dec. 20, the highest level since Oct. 5, according to CMA prices. The swaps were 142 basis points on Dec. 22. CMA is owned by CME Group Inc. and compiles prices quoted by dealers in the privately negotiated market.
Total debt issuance, including securities to replace maturing debt and so-called zaito bonds sold for government agencies, will increase by 4.6 trillion yen to a record 174.2 trillion yen, the Ministry of Finance said Dec. 24.
Japan’s benchmark 10-year bond yield was unchanged at 0.97 percent on Dec. 22 as a 0.8 percent drop in the Nikkei 225 Stock Average supported demand for debt.
The Ministry of Finance said it will expand each monthly auction of debt maturing in 10 and 20 years by 100 billion yen in 2012 from the original plan for this year. The government in November increased sales of two- and five-year debt by 100 billion yen at each auction after Prime Minister Yoshihiko Noda approved a 12.1 trillion yen third extra budget to fund earthquake rebuilding
“The government is increasing issuance of long-term and super-long-term bonds because it wants to borrow for a long period while interest rates are still low,” said Naomi Hasegawa, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities Co. in Tokyo.
The nation’s economic expansion will probably slow after annualized 5.6 percent growth in the three months ended September fueled by demand related to the March 11 earthquake.
The median estimate of 11 economists surveyed by Bloomberg News is for growth of 0.42 percent this quarter. Of the 10 polled this month, five predicted GDP will shrink.
Still, maybe some are finally awaking to the insanity…
Japanese rating company R&I, in cutting the nation’s rating to AA+ from AAA on Dec. 21, said prospects for an economic rebound are “uncertain” and that its debt “would inevitably rise for an extensive period of time.”
The outstanding debt of the world’s third largest economy was 954.4 trillion yen at the end of September. It’s projected to reach 219 percent of gross domestic product next year, the most among the member nations of the Organization for Economic Cooperation and Development, according to the OECD.
“The fact that the domestic rating agency had to make such a decision will likely make not only money managers but also Japan’s public seriously doubt if the nation’s finances are really okay,” said Akane Enatsu, a senior credit analyst at Barclays Capital in Tokyo.
Unfortunately, we doubt it. After all it is not only Europe (thank you SWIFT), but the entire world that has now crossed the Rubicon of the Bizarre, where the mere contemplation of the fact that the world’s head economic shamans have been wrong from day one is grounds for immediate systemic collapse. We reckon we have a few months before even the mere speculation that the system is headed for outright disaster become a punishable felony offense, roughly at the same time the soon to be enacted SOPA makes sure any dissent is dealt with cleanly and efficiently.