Monday, August 23, 2010

Don't Count on Japan to be a Long Term Buyer of U.S. Treasury Securities

They are going to need the money internally.

China and Japan have been huge buyers of Treasury securities in recent years. There are strong indications that this will change. It appears that China is slowly moving away from a program of U.S. Treasury investing and Japan's internal savings rate is declining dramatically, while the population ages (an aging population sucks up savings)

Below is a video that does a solid job of explaining the developing situation in Japan (Thanks to Ash Navabifor for sending along the video)

The only point I would quibble with in the video is the second speaker who says Japan has done everything to stop deflation and couldn't do it. First, price deflation in and of itself is not a negative. In fact, if all prices started to fall the way cell phones, laptops and flat screen TV's have, it would be a great thing. Second, if a government/central bank wants to fight deflation. It can do so by printing and printing, eventually the inflation will kick in. If the Japanese central bank is having trouble fighting deflation, they should double the money supply, send the new money to me and I will end "lack of spending" and deflation real fast.

More than a failure to fight deflation (which they shouldn't be doing anyway), Japan's central bank, like the Fed is confused by its own monetary "tools" and thinks it is easing when it isn't.

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