economic warfare

[SI]

If you read Hank Paulson's book you'll know the Russians allegedly approached the Chinese about a similar strategy in the depths of the crisis about an attack on the US. At the time the Chinese decided against this path but it seems they are looking(according to the telegraph piece i'll link below) at this strategy in regards to Japan.

 

http://www.telegraph.co.uk/finance/china-business/9551727/Beijing-hints-at-bond-attack-on-Japan.html

[Guest rimm_never_sleeps]

really? the Russian's "allegedly" did this?

 

this person (from the Chinese Academy of International Trade) in china wrote an editorial. I would not bet he is in any position to directly influence state policy. the article you linked to does not state what his title is.

[SI]

In his book "on the brink" the stated intention which he called a disruption scheme was for Russia to collude with the Chinese to dump their bonds in order to trigger broader bailout at least of the GSEs. I believe it was something he learned of at the Beijing Olympics.

[biaggio]

In his book "on the brink" the stated intention which he called a disruption scheme was for Russia to collude with the Chinese to dump their bonds in order to trigger broader bailout at least of the GSEs. I believe it was something he learned of at the Beijing Olympics.

SI,

What did you think of the book?

[beerbaron]

If you read Hank Paulson's book you'll know the Russians allegedly approached the Chinese about a similar strategy in the depths of the crisis about an attack on the US. At the time the Chinese decided against this path but it seems they are looking(according to the telegraph piece i'll link below) at this strategy in regards to Japan.

 

http://www.telegraph.co.uk/finance/china-business/9551727/Beijing-hints-at-bond-attack-on-Japan.html

 

That sounds like a story from a bad thriller. If China would do a financial attack on Japan, the central bank of Japan could easily buy all the Japanese government bonds. The rising sun country could actually benefit from a devalued currency.

 

BeerBaron

 

 

[Green King]

I never understand this dumping of government debt thing to make things happen.

if u sell Us treasury you end up with Us dollars in a Bank and if you buy other foreign debt than they end up with it.

What part of the mechanics will cause the change ? 

or have i miss understand the whole thing ?

[SI]

I liked the book but I also liked Greenspan's book both from a historical perspective so take that for what it is worth. I always thought Hank Paulson was someone that stood out in govt b/c he knew what he was doing, you believed would do the right thing in a very dark hour and maybe you could even say was worth being trusted.

 

Regarding bond dumping - This is S&D 101, if you dump your bonds at a certain scale you create a price depression thereby raising the yield. If that higher yield necessary to attract new buyers raises the cost of debt things can get ugly pretty quickly as the mechanism obviously is circular.

 

This morning, the Japanese announced they would buy more of their own debt. Most of the writers I saw were saying this was a move in support of global easing, I think it was rather about showing China that there is a bid for that debt. The problem is and the Chinese know it, and have a bevy of things working in their favor which I'll highlight below.  Lee Cooperman has called this 20 year "trade" a widowmaker and he has been right but I struggle to see how economics don't ultimately eliminate the current Japanese Govt distortion which is how I am positioned in full disclosure.

 

Concerns:

-Price of cds doubled in past year

-Japanese public pension(largest in the world I believe) said they will be net sellers of govt bonds this year, owns 10% of all jgbs. The electorate will get their checks.

-Trade defecit for the first tine in more than 30 years

-Debt/gdp ~240 %

-Each citizen owes 86200 to Japanese debt holders.

-Avg maturity 6 years, next 5 years 60% needs to be rolled over

-Zero net immigration over 10 years

-Lowest birth rate in the world at 1.2%

-Bank of tokyo-mitsubishi says household savings cross into negative by 2015

-Debt service as a % of tax revs exceeded 57% in 2010 according to soc gen and int expense 27%.

-50% of Japanese budget financed by debt

-Sales tax going from 5% to 10%.

-Foreigners only own 6% of JGBs but the consumer is tiring of these bonds, Link Below.

 

http://www.newsorganizer.com/article/mrs.-watanabe-spurns-azumi-pit-5ce39d134843e03ccb47df8aa13b0a48/

[beerbaron]

I liked the book but I also liked Greenspan's book both from a historical perspective so take that for what it is worth. I always thought Hank Paulson was someone that stood out in govt b/c he knew what he was doing, you believed would do the right thing in a very dark hour and maybe you could even say was worth being trusted.

 

Regarding bond dumping - This is S&D 101, if you dump your bonds at a certain scale you create a price depression thereby raising the yield. If that higher yield necessary to attract new buyers raises the cost of debt things can get ugly pretty quickly as the mechanism obviously is circular.

 

This morning, the Japanese announced they would buy more of their own debt. Most of the writers I saw were saying this was a move in support of global easing, I think it was rather about showing China that there is a bid for that debt. The problem is and the Chinese know it, and have a bevy of things working in their favor which I'll highlight below.  Lee Cooperman has called this 20 year "trade" a widowmaker and he has been right but I struggle to see how economics don't ultimately eliminate the current Japanese Govt distortion which is how I am positioned in full disclosure.

 

Concerns:

-Price of cds doubled in past year

-Japanese public pension(largest in the world I believe) said they will be net sellers of govt bonds this year, owns 10% of all jgbs. The electorate will get their checks.

-Trade defecit for the first tine in more than 30 years

-Debt/gdp ~240 %

-Each citizen owes 86200 to Japanese debt holders.

-Avg maturity 6 years, next 5 years 60% needs to be rolled over

-Zero net immigration over 10 years

-Lowest birth rate in the world at 1.2%

-Bank of tokyo-mitsubishi says household savings cross into negative by 2015

-Debt service as a % of tax revs exceeded 57% in 2010 according to soc gen and int expense 27%.

-50% of Japanese budget financed by debt

-Sales tax going from 5% to 10%.

-Foreigners only own 6% of JGBs but the consumer is tiring of these bonds, Link Below.

 

http://www.newsorganizer.com/article/mrs.-watanabe-spurns-azumi-pit-5ce39d134843e03ccb47df8aa13b0a48/

 

So what happens to exports when the central bank of Japan becomes the buyer of those bonds? How' s their currency going to be affected?

 

The answers are simple and China has no advantage to lower the cost of producting goods in Japan...

 

BeerBaron