Posts Tagged Mish

Mish’s Economic Analysis: Global Recession, Right Here, Right Now: Japan’s Capital Spending Plummets; Eurozone PMI, UK PMI, US ISM ex-Inventory, China Exports in Contraction

Economist Mike “Mish” Shedlock states categorically that the world economy is in recession. He lists 19 verifiable facts as his reasons for his statement. I reproduce just two here that mention Japan, although the whole list concerns Japan really.

It’s time to stop debating whether or not the US or Europe is headed into recession. The facts show the entire global economy is in recession.

Global Recession Supporting Data-Points

  • Japan’s PMI fell at three-month low Financial Times
  • Japan Capital Spending Plummets 7.8% In Q2, Expectations were 1% Increase RTT

via Mish’s Global Economic Trend Analysis: Global Recession, Right Here, Right Now: Japan’s Capital Spending Plummets; Eurozone PMI, UK PMI, US ISM ex-Inventory, China Exports in Contraction.

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Moody’s Downgrades Japan Debt Rating To Aa3: Nikkei

Moodys downgrades Japanese bonds to Aa3, due to huge and increasing amount of public debt and large budget deficits.

米格付け会社ムーディーズ・インベスターズ・サービスは24日、日本国債の格付けを「Aa2」から「Aa3」(ダブルAマイナスに相当)へ1段階引き下げたと発表した。同社による日本国債の格下げは約9年ぶり。今後の見通しは安定的とした。格下げの理由は「多額の財政赤字と、2009年の世界的な景気後退以降の政府債務の増加を受けたものだ」と指摘した。

via ムーディーズ、日本国債を格下げ 1段階低い「Aa3」  :日本経済新聞.

Moody’s said it was cutting Japan’s government bond rating to Aa3 from Aa2, citing “large budget deficits and the build-up in Japanese government debt since the 2009 global recession.” It said the outlook was stable. The action puts Moody’s rating on a par with other major ratings companies Standard & Poor’s and Fitch Ratings, both of which rate Japan’s sovereign debt at AA- with a negative outlook.

The yen fell briefly on the news, with the dollar spiking to Y76.78

Like the U.S., Japan is facing increasing criticism over its financial condition, bringing action from the ratings companies. But its finances are in far worse shape with nearly half of the annual central government budget financed by bond issuance and the country’s gross debt now equal to more then 200% of annual GDP. That compares with a U.S. debt load at an estimated 75% of GDP.

via Moody’s Downgrades Japan Debt Rating To Aa3: Nikkei

Japanese Finance Minister Yoshihiko Noda declined to comment on the Moody’s move, but he defended the creditworthiness of Japanese sovereign debt. “The smooth sales of Japanese government bonds at recent auctions show that confidence remains unshaken,” Noda told reporters after the downgrade.

Readers may wish to compare this completely unbiased and objective view with this one from economic analyst Mish regarding a bond auction in early August:

Please note that was not a failed auction. Indeed it was oversubscribed. However, nearly all of that demand is internal. Internal demand is a double-edged sword. Right now it is still sufficient. However, when (not if), Japan ever needs foreign buyers for its bond market, rates will not be 2.3% on 40-year bonds.

Related articles:

  1. 2011/08/23 17:32 – ‘Bond Vigilantes’ Sizing Up Prime Minister Hopefuls

  2. Japanese debt now 7,380,000 per person 「国の借金」最大の943兆円 6月末、1人あたり738万円  :日本経済新聞 
  3. Mish’s Global Economic Trend Analysis: Worst Demand on Record for Japanese 40-Year Bonds; Can Japan Service its Debt? How?

  4. Markets Hope For Follow-Through On Taxes, Yen From New Govt
  5. DPJ Contest To Be Fought Over Rebuilding, Tax Hikes

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Thinking the unthinkable: Sell U.S. Treasuries | The Japan Times Online

Peter Schiff gets interviewed by AP, and the Japan Times quotes him.

Peter Schiff, chief executive of Euro Pacific Capital, a New York-based investment company, said the current accumulation of debt by the U.S. government is unsustainable.

“The more money the world lends to America today, the more money they’re going to have to lend tomorrow,” he said in a telephone interview.

“It’s a giant Ponzi scheme. Nobody is ever going to get their money back.”

Japan would be venturing into untested territory if it decided to reduce Treasury holdings.

via Thinking the unthinkable: Sell U.S. Treasuries | The Japan Times Online.

So….. reducing its Treasury holdings is “untested territory” and that’s of greater concern than “Nobody is ever going to get their money back?” I must be missing something!

(Update:) In case readers think Schiff is the only expert out there with this opinion, here’s another one, from Mike Shedlock: “The global financial system is bankrupt. There is no way loans that have been made can be paid back. That statement applies to the Eurozone, the US, the UK, China, Australia, Canada, and for that matter nearly everywhere one looks.”

And here’s some more fun facts and figures:

“The holdings translate to ¥1 million per Japanese taking this risk in shouldering U.S. debt, all without their fully being aware of it,” said Kenji Nakanishi, a lawmaker in Your Party, a new opposition party that made significant gains in the last election.

Nakanishi said that Japan shouldn’t sell all its holdings at once, but should reduce them by about ¥10 trillion each year, and earmark some of that money for recovery spending in the Tohoku region, which was devastated by the March 11 earthquake and tsunami.

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Mish’s Global Economic Trend Analysis: Worst Demand on Record for Japanese 40-Year Bonds; Can Japan Service its Debt? How?

Mish quotes Bloomberg (the link is broken)

The 400 billion yen $5.2 billion sale drew bids valued at 2.03 times the amount on offer, the weakest since the Ministry of Finance began selling the securities in 2007.

The yield on the 2.2 percent bond maturing in March 2051 jumped 15 basis points to 2.335 percent as of 5:07 p.m. in Tokyo at Japan Bond Trading Co., the nation’s largest interdealer debt broker.

Japan’s Ministry of Finance said that every 1 percentage- point increase in 10-year yields above 2 percent would add 1 trillion yen in debt-servicing costs to a projection of 22.9 trillion yen for the fiscal year starting April 2012. The nation’s total debt may reach 219 percent of gross domestic product next year, according to the Organization for Economic Cooperation and Development.

via Mish’s Global Economic Trend Analysis: Worst Demand on Record for Japanese 40-Year Bonds; Can Japan Service its Debt? How?.

Mish comments:

nearly all of that demand is internal.

Internal demand is a double-edged sword. Right now it is still sufficient. However, when (not if), Japan ever needs foreign buyers for its bond market, rates will not be 2.3% on 40-year bonds.

Here is the key: If Japan does not maintain a trade surplus covering both interest on its national debt and bond redemptions, all hell will break loose. This gives rise to the question as to how long Japan’s vaunted export machine can remain intact. I do not have the answer to that question, but China and the rest of Asia are nibbling away bits and pieces now. The tsunami sure did not help.

It is mathematically impossible for every country to maintain a trade surplus, yet every country wants to do just that.

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Mish’s Global Economic Trend Analysis: Spain’s Icelandic Revolt; Protests Spread to Italy

protest images by Juan Luis Sanchez on Yfrog

 

Wow! Things are hotting up in Europe. This is getting interesting!

A protest movement that started in Spain has now spread to Italy. The Spanish government has banned protests, but that has only encouraged more protests.

Protests in Iceland helped bring down the Icelandic government and stopped the bailouts of banks at the expense of Icelandic taxpayers. Can the same thing happen in Spain?

via Mish’s Global Economic Trend Analysis: Spain’s Icelandic Revolt; Protests Spread to Italy.

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