The Dollardämmerung Begins: America Breaks out the Bully Tactics, Buy Our Debt or Else



The America/Asia problem isn't going to get any better moving forward, and with hundreds of billions in new projects to fund, America may be looking for a new greater fool.

Via the UK Telegraph, Asia will author its own destruction if it triggers a crisis over US bonds:

Et tu Tokyo? If Washington is counting on Japan to act as last-resort buyer of US dollar bonds, it may have to think again. Masaharu Nakagawa, finance chief of the Democratic Party of Japan (DPJ), told the BBC that his country should not purchase any more US debt unless issued in yen as "Samurai" bonds, akin to "Carter bonds" in 1978.

This is the sort of petulance that tends to emerge in the late phase of slumps (1840s, early 1930s) when mass lay-offs provoke a populist backlash and hotheads run away with the agenda. Mr Nakagawa later played down the comments, calling them private thoughts, but the genie is out of the bottle.

We have come to assume that Japan under the Liberal Democratic Party (LDP) will always cleave to America, if only to safeguard US protection against Chinese naval expansion. Backed by Washington after the war as a rural counterweight to the urban left, the LDP has held an almost unbroken grip on power since 1955.

But crashes have a habit of bringing regime change. Brian Reading, a Japan veteran at Lombard Street Research, predicts a "seismic shock" over the next four months as voters rebel.

"With unemployment heading for 5 million by end-year, something must happen," he said.

Does this mean no more pandering to the insatiable American debt machine? We are delusional at best if we believe the world still believes we are the supreme rulers above all others simply because our dollar happens to be the world's reserve currency. That is the basis of this particular delusion, isn't it?

This sounds like a threat to me.

If Asia's leaders give free rein to frustrations and crater the US bond market, they will ensure their own political destruction. Japan already risks descent into demographic death, deflation, and debt atrophy (its public debt is nearing 200pc of GDP). China's regime depends on perma-boom for post-Maoist legitimacy. Could it survive the wrath of jobless graduates and rural migrants if it provokes America into erecting trade barriers, killing the globalisation goose that lays the golden egg?

American can if necessary retreat into its vast home market and rebuild its industrial base, well-armed with 12 aircraft carrier battle groups.

The last 12 months should be lesson enough that Asia cannot yet stand on its own two feet. Its mercantilist export model remains a "high-beta" play on the West, to use trader parlance.

You hear that, Asia? You're fucked and might as well deal.

Actually, I disagree with Evans-Pritchard's assessment. I think both sides are fucked in their own special way. For one to imply that America has the upper hand at this point is not just misguided, it is asinine, and the very same attitude which got America to this desperate point in the first place. It's that "fuck yeah!" lunch-money-stealing attitude of ex President Bush, bullying the nerdy kids on the playground simply because we can.

No more, kids. No more. I think our card has been pulled.

Jr Deputy Accountant

Some say he’s half man half fish, others say he’s more of a seventy/thirty split. Either way he’s a fishy bastard.

0 comments: