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Lose Lose


Total U.S. treasury debt is somewhere between $3.7 trillion and $4 trillion. Yesterday the government released statistics showing that Japan is by far our largest creditor: they currently own $500 billion or 12% in just our government debt (this does not include GSE or corporate debt), up $100 billion in the last year and $60 billion in the last six months.

This amount and rate of buying is unprecedented.

Japan is almost single handedly supporting the dollar and financing our trade deficit: the next largest creditors are China at $140 billion and Great Britain at $114 billion.

The Japanese purchases are done exclusively through their central bank, so it is not an investment decision done through private enterprise, but rather a public facilitation of the capital markets. In other words, the Japanese government has intervened heavily to slow the decline of the dollar.

We certainly are not privy to the behind the scenes discussions concerning the rationale of such intervention. But we must assume that the Japanese government feels it is in their best interests to act thus.

When any entity owns too much of something, it is a natural reaction to defend that position. This strategy operates out of fear and relies on hope.
This is not a stable situation.
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