Something major is happening with nation states, and the finance ministers that make monetary policy.
Indeed we have discussed currency & trade wars in the past; the sanctions against Russia, along with the wars in Ukraine, Syria, Libya, Yemen, and elsewhere are symptoms.
The previous international monetary consensus is dust, and the U.S. Dollar as the major balancing mechanism is now a failure.
Trillions of Bank bonds (debt) are held by institutional investors and negative interest rates makes the problem worse.
How Exposed are Sovereign Wealth Funds (SWF) and other institutional investors to Negative Interest Rate Policy (Japanese Government Bonds)?
The evidence is very revealing, and bank officials appear to be in a panic.
Brazil (the largest country in South America in Land, Population, and Economy) and Canada reports to be in a recession.
The Bank of Japan last month (Jan. 2016) joined a growing number of central banks in Negative Interest Rate Policy (NIRP) and the Federal Reserve faces the pressure to respond.
I choose not to attempt to categorize what is happening, as some are reporting “Collapse” and worse.
Because the ailing economic markets has persisted for years and could continue this anemic condition for more years. If this illness continues, then what would it mean?
It could mean a combination of several harmful events for the coming years:
Wars, inflation & deflation simultaneously (food price hikes while oil and bonds decline), governments slash social programs, more capital controls, more corruption revealed, more workers become unemployed, more homeless and social unrest…
I recall what happened to the Japanese economy and how its illness persisted for so long.
From that example, I can see the possibility for what could become the length of years ahead for the international monetary system.
Yet, the worldwide economy is not Japan.
The citizens in various countries are diverse and I expect some will oppose the official plans.
Click on the research links below, then see the comment section and share your thoughts.
Please Follow the Money and find the deception. ~Ron
Deutsche Bank Rallies On Modest Debt Buyback Plan, Schaeuble Proclaims “Strong, Resilient Bank”
…Deutsche Bank announces a public tender offer to purchase certain series of EUR and USD-denominated senior unsecured debt securities.
[I See buyback plan as a desperate move…]
Read: Zero Hedge
Japan Post Bank cut JGB holdings by $78 billion
* Japan Post Bank manages $1.8 trln investment portfolio
* Portion held in JGBs drops to 40.8 pct end-Dec vs 45.2 end-Sept
* BOJ’s negative interest rates makes it harder to secure returns (Recasts, adds breakdown of portfolio changes)
[…] The Bank of Japan’s surprise decision to introduce negative interest rate last month is likely to add to the difficulty of managing the bank’s massive portfolio, as it has been building up reserves at the central bank amid a general lack of attractive investment alternatives.
[…] The bank is one of the biggest institutional investors in the world, with a portfolio valued at 205 trillion yen ($1.8 trillion).
Its investment has traditionally been made up mostly of JGBs but ultra-low interest rates have encouraged it to seek assets offering higher yields.
“This financial year, there’s not going to be much in the way of an impact on earnings but if the situation continues then there will be an impact, not just on us but for all financial institutions,” Noboru Ichikura, a Japan Post managing executive, said.
China recalibrates GDP target; BOJ looks into possible policy leaks; Ukraine economic minister resigns charging graft …
Eurobanks: The Probable Point of Failure as Systemic Stress Rises
Posted on February 12, 2016 by Yves Smith
As all major financial markets – stocks, currencies, commodities, and bonds – continue to be highly volatile and risk averse, investors’ mood, and even that of real economy players, is getting nervous and gloomy. Both the masters of the universe at Davos and corporate CEOs have an uncharacteristically subdued outlook for the upcoming year.
But the open question is how much financial market stress transmits into the financial system and/or the real economy.
[…] A near term risk is a Chinese currency depreciation. China is spending nearly $100 billion a month defending its currency. Experts vary on how long it can keep this up. Even though China reported $3.2 trillion in foreign exchange reserves at the end of January, it may be closer to a breaking point than most observers realize. From Forbes:
…the central bank has been trading derivatives, especially forwards, to mask the decline in its currency position, much like Brazil did in 2013. The stratagem permits the PBOC, as the central bank is known, to effectively sell dollars without reporting a decrease in its holdings of foreign currency. When these short-dollar positions are unwound, as they eventually must be, China’s reserves will plunge dramatically.
And tightening of capital controls may not be as effective as they appear either:
At this moment, there has been a “surge” in China’s “errors and omissions” entry. Charles Collyns of the Institute of International Finance told the Telegraph that the increase is “ominous.” That suggests, despite everything, many in China are getting their money out through illegal channels.
According to Bloomberg’s Fielding Chen and Tom Orlik, if capital controls work, China needs only $1.8 trillion in reserves, according to an IMF formula that suggests countries hold in their reserves an amount equal to 10% of annual exports, 30% of short-term foreign debt, 20% of other foreign liabilities, and 5% of M2. At the current rate of depletion and assuming Beijing has reserves in the amount reported, the central bank can defend the renminbi for more than a year.
If, however, China’s restrictions begin to fail, then Chen and Orlik calculate the PBOC needs $2.9 trillion in reserves. In this case, China could fall below this level before the end of Q2.
A fall in the renminbi would send another deflationary pulse through financial markets, and would show up in the real economy over time through even lower demand for commodities. This has to blow back to the already fragile Eurobanks. How badly is anyone’s guess.
And we need to underscore a bigger set of issues looming behind all of these problems. With the new set of EU banking rules and gee-whiz fixes like coco bonds, the European officialdom has taken the public position that it has fixed its banking problems. And due to Germany’s anathema for having the ECB engage in anything that might be stealthy fiscal action, or in having Eurozone member states stray outside their spending limits, the Europeans are not set up ideologically or operationally to respond to a crisis, even the sort of slow-motion crisis now underway.