Bloomberg TVGold has been getting crushed. It’s almost back to its April lows.
Japanese Government Bonds (JGB) have also been getting slammed lately, although yields are still incredibly low.
We’ve been talking about why the gold decline is good news (it means an end to fear, and an increase in desire to put money into real assets).
But some have worried about the decline in Japanese Government Bonds (and the increase in yields) given Japan’s famously high debt.
David Zervos of Jefferies says not to worry about it. It’s all part of the same awesome news.
Many in the doom and gloom crowd have warned of impending disaster as JGB prices plummet. The typical story centres upon unsustainable debt levels and higher debt service costs associated with higher rates. The story line generally involves a vicious payment spiral which destroys public finances and spins the country into Armageddon/default – essentially Japan becomes Greece.
Of course, the failure in this line of reasoning is simple. Any country that prints the fiat which backs its debt issuance can never default – unless they actually choose not to print. Could the BoJ “choose” to stand idly by and not print Yen as government financing costs spike? Sure they could – and they could also decide to start singing karaoke during Board meetings. They “could” do anything, but they won’t halt the printing presses during a public finance crisis. Right now the BoJ is barely holding on to its independence, do you think they will be able to hold off on printing as a serious crisis develops? No Chance.
So all the signs continue to be good.
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