Comment by bilsbie
11 hours ago
Can anyone steel man the “this isn’t a big deal” side of this?
On x and reddit all I see are sky is falling posts.
11 hours ago
Can anyone steel man the “this isn’t a big deal” side of this?
On x and reddit all I see are sky is falling posts.
Hold on there. The reason you mostly see sky is falling posts is that those get more engagement, both positive and negative. "Everything is fine" doesn't cause a reaction in a reader.
This is inherent to social media. It's bad for us, too, because it eventually tricks our brain into thinking the sky is always falling, no matter how we try to talk ourselves out of it.
Curious what others think. In my small real offline world, it seems this has caused people to get worked up about the sky falling a few times and then quit paying any attention to the sky or boy crying wolf at all.
Which means when events actually happen that will have a large negative impact on their life or their descendants, they just don't care. Which then results in another metaphor - boiling a frog.
If you're not an activist, you just have to ride it out and vote when you can. Trump made sure I'll never skip an election ever.
The not caring is honestly a good idea for most people. Very few people have any action they can take that will make measurable change on those negative impacts.
I'm just not sure what it could mean for a typical person, who does not participate in and is not familiar with the EUR/JPY foreign exchange market, to care about a story like this. Is there some financial decision I should be making based on this intervention? If we all got together and protested, might we convince Bessent to buy the euros back, and would that restore the status quo ante if he did? The few people who have any levers to pull here have surely been made aware of the story by now, so if the answers to all of the above are "no", it seems correct for most people not to care.
I think Peter Schiff has been beating the drumbeats of collapse since 2008. But now on the other hand, we have a rising power China trying overthrow the current system which will accelerate the process. China wasn't in that position in 2008.
“The sky falling” on the global economy would be terrible for China.
Domestic demand is being prodded to grow, but the Chinese economy would be in tatters if exports fell off a cliff.
Best I can do is point out that much of American economic history for the past 300 years has been stumbling from crisis to crisis, and somehow we muddle through. A good book to understand this is https://a.co/d/0aTW4L6D
I don't disagree, but I'd point out that this is a weak steeleman. Essentially it's, "past performance guarantees future results."
We only have a limited sample size of economic data.
That "historic" characterization has a smell of sports statistics. Yeah, that player never scored a goal in a Friday when it's a full Moon on the team's home stadium; no, that's meaningless.
The Japanese economy is changing, but that's true for any economy at any time. The world is currently in a crisis that is testing international relations, but I hope you knew that already. This one intervention doesn't add much by itself.
Here’s the likely rationale from one of the FT comments:
“It looks like the Japanese economy is on the BoJ [Bank of Japan] ventilators. I mean, the BoJ is the largest single holder of Japanese equities, government bonds (JGBs) and currency (JPY). It’s likely that the BoJ is printing more yen to finance Japan Inc, which in turn is probably the driving force behind inflation.
[…]
BoJ is the largest foreign bank holding USTs [US treasuries], around $1.14tn, it’s likely that they would have had to sell some treasuries to finance JPY purchases. My view is that, this scenario is not ideal for the US Treasury – particularly right now with the UST yield curve steepening – hence they had to “return the favour” by selling EURJPY”
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tl;dr in my layman interpretation: US helps Japan by selling (shorting) EU in a debt-exchange triangle. The US didn’t have much choice, as Japan would have sold USD, which they hold plenty of, to finance their spending spree. They just have to hope their bet on JPY vs EUR pays off in the long-term.
> hope their bet on JPY vs EUR pays off in the long-term
Which bet?
Yes, which bet? I agree. There's no bet here. The comment correctly outlines why the US is doing this and how it benefits. And instead of concluding that "this is why they're doing it", they're making some weird hint that they're shorting the Euro and that somehow this doesn't pay off if the trade isn't favourable or something else? They benefit by BoJ not selling US treasuries. It doesn't matter how EUR is valued against JPY. It's not a bet between these two currencies. Europe would also benefit by their currency getting weaker, since it's filled with export-heavy countries like Germany.
To see the steelman position explained properly, I would suggest to follow macro guy Luke Gromen both on twitter and on YouTube.
Not really what you asked for, but what I would say is that this specific incident isn't like some huge deal or something. It's just the USA doing something that helps Japan stabilize its currency, and helps the USA avoid a spike in people selling US treasuries (which would raise US borrowing costs).
It's unusual, but not earth shattering or crazy.
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The wider picture looks rather worrysome though. Japan has spent decades building up a nest egg of US treasuries as a way to try and fight of deflation. Now, they have inflation and currency depreciation, so the extremely natural thing to do is for Japan to sell their accumulated assets to defend their currency and dampen inflation.
The USA on the other hand has been going around with a fork and sticking it in electrical sockets, and has earned a reputation for being extremely erratic and unfocused on stability. The USA also has zero plan or intention to get its debt burden under control.
This makes investors who hold US treasuries nervous. They see increasing geopolitical instability, increasing political disfunction in the USA, and the early stages of a USA debt crisis that could end in debt defaults (Bessent has already actually hinted at this, when he suggested unilaterally converting some already sold bonds to '100 year bonds').
This situation has caused US borrowing costs to go up, and japan switching from a net treasury buyer to a net treasury seller would make it harder for the USA to sell more bonds without giving even higher interest rates, which just makes the current debt troubles worse.
Don’t forget the EUR side to the operation. US is helping Japan by selling Euros. The big question whether this is a sensible bet.
As a European, I'm somewhat sensitive to that side of things, but if you look at the USD-EUR exchange rates, the Euro has only strengthened against the USD since this happened.
I guess it's just not a big enough shift to change the overall USD-EUR dynamics. Plus, I think a lot of the Eurozone wouldn't actually mind if the Euro weakened a litte, even if it'd make the current energy price problems worse.
But even if the USD did liquidate enough Euros to shift the dynamics, and if this was decided to be a bad thing, the Eurozone countries hold way more US treasuries than Japan, and could just sell those if they wanted to, which could quickly bring things back into balance, and would be a major deterrent against the US.
US sells EUR, buys JPY, BoJ doesn't need to sell US treasuries. There's no bet here. What do you mean by bet? They could be losing money on the trade and it wouldn't matter as long as they avoid US treasury yields from rising any further.
> unilaterally converting some already sold bonds to '100 year bonds'
Is this even legal? I mean, is this possibility stated in some terms and conditions that one must accept when purchasing a bond?
I doubt it's 'legal' per-se, but I also doubt the legal troubles would be the biggest obstacle to doing it as it'd cause an insane meltdown in the bond market.
I double checked and it wasn't actually Bessent who suggested it but Miran. This was back when he was a bigger figure, probably played a role in his sidelining.
The sky has been falling for the Yen for about thirty years now. At this point it feels like the boy who cried wolf.
Why would the sky be falling? Getting the world's largest economy to prop up your own economy is kind of the point to being an ally of the biggest economy in the world; the Japanese and American governments being in bed together and planning the Japanese economy is not just normal, but is one of the bigger conspiracy theories persisting from the 1980s when US intervention is blamed as the reason Japan's economy stagnated in the 90s. So I don't understand why this would be a sky is falling moment.
Because then the world's largest economy suddenly needs to de-lever to afford the oil you made more expensive. The USA government will enter a debt-interest spiral if Japan sells its bonds. There will be no recovery from that besides, maybe, hyperinflation through printing away the debt.
> The USA government will enter a debt-interest spiral if Japan sells its bonds.
Regardless if they sell all their bonds this second or not, the US spiral is a foregone conclusion.
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FX interventions are nothing new and 3% isn't nothing but it's not that much. The sun will rise in the morning, nbd.