35 Trillion Reasons
An excellent expose was forwarded to me by a Naybob of Simian Nature. As this is a very delicious truffle, I will be serializing this over the next seven days, so that we may masticate it slowly, digest it fully and savor it.
This series will touch upon the topics that we have talked about in The Name of The Game I, II, III, IV, V , Epilogue and Forex Arbitrage Fraud; and in Meet the New Boss I, II, III, IV and V.
Namely, Global Bond and Currency Arbitrage (i.e. Forex Arbitrage) and their manipulation by hedge funds, large multinational corporations and the banking institutions themselves, led by the government central banks.
Part I - Japan's Reflation
¥35 trillion is approximately 1% of the world's annual economic output. ¥35 trillion amounts to the equivalent of $2,500 for every person in Japan and would amount to $50 per person if distributed equally amongst the entire population of the planet.
In 2003 and the first quarter of 2004, during a 15 month period, the Bank of Japan created ¥35 trillion. In short, the Bank of Japan created money on a scale never before attempted during peacetime.
Why did this occur? There is no shortage of yen in Japan. The yield on two year JGBs is 10 basis points. Overnight money is free. Japanese banks have far more deposits than there is demand for loans, which forces them to invest up to a quarter of their deposits in low yielding government bonds.
So, what motivated the Bank of Japan to print so much more money when the country is already flooded with excess liquidity?
The Bank of Japan gave the ¥35 trillion to the Japanese Ministry of Finance in exchange for MOF debt with virtually no yield; and the MOF used the money to buy approximately $320 billion from the private sector.
The MOF then invested those dollars into US dollar- denominated debt instruments such as government bonds and agency debt in order to earn a return.
The MOF bought more dollars through currency intervention during those 15 months, than during the preceding 10 years combined, and yet the yen rose by 11% over that period.
Historically, foreign exchange intervention to control the level of a currency has met with mixed success, at best; and past attempts by the MOF to stop the appreciation of the yen have not always succeeded. Those efforts were considerably less expensive, however.
It is also interesting, and perhaps important, to note that the MOF stopped intervening in March 2004 just when the yen was peaking; that the yen depreciated immediately after the intervention stopped; and when the yen began appreciating again in October 2004, the MOF refrained from further intervention.
So, what happened in 2003 that prompted the Japanese monetary authorities to create so much paper money and hurl it into the foreign exchange markets? In Part II we will examine the situation in the US at the time.
This series will touch upon the topics that we have talked about in The Name of The Game I, II, III, IV, V , Epilogue and Forex Arbitrage Fraud; and in Meet the New Boss I, II, III, IV and V.
Namely, Global Bond and Currency Arbitrage (i.e. Forex Arbitrage) and their manipulation by hedge funds, large multinational corporations and the banking institutions themselves, led by the government central banks.
Part I - Japan's Reflation
¥35 trillion is approximately 1% of the world's annual economic output. ¥35 trillion amounts to the equivalent of $2,500 for every person in Japan and would amount to $50 per person if distributed equally amongst the entire population of the planet.
In 2003 and the first quarter of 2004, during a 15 month period, the Bank of Japan created ¥35 trillion. In short, the Bank of Japan created money on a scale never before attempted during peacetime.
Why did this occur? There is no shortage of yen in Japan. The yield on two year JGBs is 10 basis points. Overnight money is free. Japanese banks have far more deposits than there is demand for loans, which forces them to invest up to a quarter of their deposits in low yielding government bonds.
So, what motivated the Bank of Japan to print so much more money when the country is already flooded with excess liquidity?
The Bank of Japan gave the ¥35 trillion to the Japanese Ministry of Finance in exchange for MOF debt with virtually no yield; and the MOF used the money to buy approximately $320 billion from the private sector.
The MOF then invested those dollars into US dollar- denominated debt instruments such as government bonds and agency debt in order to earn a return.
The MOF bought more dollars through currency intervention during those 15 months, than during the preceding 10 years combined, and yet the yen rose by 11% over that period.
Historically, foreign exchange intervention to control the level of a currency has met with mixed success, at best; and past attempts by the MOF to stop the appreciation of the yen have not always succeeded. Those efforts were considerably less expensive, however.
It is also interesting, and perhaps important, to note that the MOF stopped intervening in March 2004 just when the yen was peaking; that the yen depreciated immediately after the intervention stopped; and when the yen began appreciating again in October 2004, the MOF refrained from further intervention.
So, what happened in 2003 that prompted the Japanese monetary authorities to create so much paper money and hurl it into the foreign exchange markets? In Part II we will examine the situation in the US at the time.
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