Thursday, March 1, 2012
Clueless commentary about Japan sovereign debt
I’ve been hearing a lot of comments recently from the ranks of the VSP’s (Very Smart People, and I’m being massively facetious here) about the coming need for Japan to roll over $3 trillion in sovereign debt. They are saying it as if it were some giant tsunami rolling in rapidly off the ocean, headed toward the beach. And we—investors—are supposed to be feeling like a bunch of helpless, English tourists trapped on the island of Phuket, 20 minutes after a #10 on the Richter scale underwater earthquake just hit a couple of miles offshore.
Anyone who is saying this or warning of this is monumentally and completely ignorant about the monetary system.
Japan’s debt—all of it—is denominated in yen. Japan makes the yen. It controls ALL yen denominated accounts. The act of “rolling over debt” is merely an accounting procedure at the Bank of Japan (the Japanese central bank). When those securities reach maturity and come due, the Bank of Japan merely credits the reserve accounts of Japanese bond holders by $3 trillion and debits the securities accounts of those same bond holders. What just happened? Not much. It’s like your CD coming due at the bank. What happens there? The bank debits your CD (you no longer have it) and credits your checking account by the amount of the CD.
So is $3 trillion a big number?
So far this fiscal year (5 mos), the US Treasury rolled over or redeemed $2.6 trillion. Did the world come to an end? For all of 2011, the US Treasury rolled over $7 trillion. We’re all still here and so are the markets. Doing very well thank you very much.
Plain and simple: these people saying these things are clueless. Ignore them.