Tuesday, December 23, 2003

Japan - MOF - Y140,000bn.

Is Japan handing BushCo the election, or just trying to survive? This is astounding news! Democrats better take notice.

The Ministry of Finance Has A Message For You

Harry Chernoff is an independent economist in Great Falls, VA

In Wall Street parlance, the heavyweight traders of the 1980s and 1990s were the Masters of the Universe. Well, Wall Street is going to have to come up with a new phrase to describe the universe the men at Japan’s Ministry of Finance are coming from. Forget about the little boys from Liar’s Poker and Long-Term Capital Management. It’s time to think in terms of a full-scale, Japanese-style Master of the Universe -- Godzilla.

On December, 19, 2003 the Financial Times reported that the Ministry of Finance (MOF) “said it would raise the ceiling on the amount it could borrow for intervention by Y21,000bn to Y100,000bn ($930bn) for the period until March, and by Y61,000bn to Y140,000bn for the year starting in April.”

Here’s the story in the Financial Times.

Let’s put 140,000 billion Yen ($1.3 trillion) in a U.S. perspective. In round numbers it is about equal to next year’s Federal budget deficit, next year’s state budget deficits (all 50 states), and next year’s current account deficit, combined -- with enough left over for the pension plans of every hard-pressed steel and automobile manufacturer in the country.

In practical terms, intervention at anything approaching this level means that the dollar / Yen exchange rate and the long-term Treasury bond rate will be whatever the MOF wants them to be. Assuming the MOF locks in the exchange rate and the bond rates at about current levels, it also means that the U.S. Presidential election next November was decided last week in Tokyo. As long as Japan is willing to monetize unlimited American profligacy next year, there is no possibility that the U.S. economy will run out of steam before the election. Even with China cutting back on domestic credit and apparently cutting back on its acquisition of dollar-denominated reserve assets, it won’t make a difference. Alan Greenspan can sit on his hands for all that it matters to Godzilla. When the largest creditor in the world with the largest current account surplus in the world calls the tune, you dance. ...Continued

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