Sudden Japanese economic fragility and how a Global Black Swan depression is more possible in 2023

Japan’s ultra loose economic dynamics of always intervening in the market and buying up huge chunks of Japans own industry has seen a GDP debt ratio of 260%…

Japan has defied gravity for decades, running nosebleed fiscal deficits for years with no apparent cost or inflationary effect.

But inflation has returned in the aftermath of the Covid-19 pandemic, pushing the country from a bad but stable equilibrium into an unstable equilibrium. The Bank of Japan is riding a tiger as it tries to manage its exit from extreme quantitative easing and its policy of holding down bond rates.

“The Japanese haven’t had an interest rate rise in three decades and nobody is positioned for it,” Prof Rogoff says.

“The public debt is 260 per cent of GDP and half of that is overnight debt.”

…half of Japan’s debt is sort overnight every single day?

Sweet Jesus, and how’s that liquidity looking?

Concerns over liquidity and the ability to buy JGBs in time were the reasons most other short-sellers covered their short positions this week, bankers said.

Most investors do not expect to hunker down for long, however, and are preparing to return to the trade before April when there is a change of guard at the BOJ after Governor Haruhiko Kuroda and two of his deputies step down.

“Most people are concerned about market liquidity in the bond market,” a senior trader at a global bank in Asia told Reuters.

“I think depending on market developments, if liquidity gets worse, people will unwind their positions – not because they are changing their view, but because they are really concerned about the market dislocation.”

…at a time when the UK economy is in trouble, the Chinese economy is in trouble, the American Economy is baking in a recession and when the World Banks are predicting a global recession, the ease of any of these current economic woes into full blown Black Swan events of destabilisation get more and more likely, especially when you add exacerbating factors like catastrophic climate change and war.

Look at the 11.4% food inflation we just were stung with, that after all the talk of peak inflation being reached. The dip in American inflation was driven by Biden releasing 15 million barrels of oil from the Strategic Reserves, he can’t keep playing that game meaning inflation has paused and retreated, it hasn’t be defeated and the moment any Central Bank blinks, they lose all the political credibility capital they’ve already spent on tightening.

Not one Reserve Bank can risk that.

They will redouble their efforts at causing inflation, not ease off them.

Why risk losing all that credibility capital by blinking now?

Orr needs to bring in 100 point rise next month, not decrease it!

50% of Kiwis will come off their floating rate of 3.5% and walk into 7% rates. That’s $400 extra per week many first time home buyers will now need to find ON TOP of the increase in petrol prices, ON TOP of the increases in food prices, ON TOP of weakening wage bargaining as employers open the borders to a cheaper migrant labour force.

The economic shockwave coming our way this year will demand politicians have actual solutions to the real pain many are about to experience.

National and ACT say they must slash back the State to cope with the intense damage late stage capitalism is causing, where as Labour and the Greens need to articulate a bigger State that does more with money harvested directly from the richest NZers and companies.

That is the debate that will shape NZ in 2023.

What will you do to make living here during this next financial crisis achievable.

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