Daily Archives: January 13, 2010

Robin Harding

Dylan Grice of the Societe Generale strategy team put a punchy note out yesterday on the Japan-national-debt-default-or-hyperinflation theme that occurs when one looks at forecasts of 2010 government net and gross debt of 115 per cent and 227 per cent of GDP.

Here’s a taster (the note has also been written up in apocalyptic tones today by Ambrose Evans-Pritchard of the Telegraph).

Japan’s government borrows from Japanese households and has done for decades. But Japanese households are retiring, and traditionally retirees run down their savings. So who will fund Japan’s future deficits, which are already within the range identified by inflation historian Peter Bernholz as hyperinflation ‘red flags’? Twenty years ago, who could predict long-term JGB yields below 1%? Who sees uncontrolled inflation as the primary risk facing Japan today?

Government debt cannot rise indefinitely as a share of GDP, while the greater the stock of debt and the greater the flow in any given year, the greater the chance of a crisis. I don’t agree, however, that (a) Japan is about to run out of domestic savings to fund its deficit or that (b) the most likely nature of the final crisis is hyperinflation.

As Mr Grice argues, Japan’s household savings are in decline as the population ages. Governments that need to borrow from overseas – most seriously those that need to borrow in a currency they cannot print – are in much greater danger of a debt crisis.

Japan is still very far from that position, however. 

Yes, Moody’s misery index is out again. It has a similar, but more comprehensive, line-up to the last one we showcased. Spain is the most miserable, Bulgaria the least, with the UK nearly as miserable as Greece, and the US more miserable than Jamaica.

The misery index is a crude addition of 2010 forecasts of unemployment and the fiscal deficit (as a percentage of GDP). 

Simone Baribeau

The Fed has been hard at work interpreting Congress’ May 2009 Credit Card Act, which overhauls the rules for the consumer credit card industry, ahead of issuers’ February 22 deadline for implementation.

Today the Fed approved its final rules, after its statutory comment period, and among the changes, a consumer win, says Josh Frank, Senior Researcher at the Center for Responsible Lending.

After February 22, credit card companies will no longer be allowed to use floors in variable rate credit cards, a common practice where rates rise when an index (such as prime or libor) rises, but can’t fall below a certain level when the index falls. 

Simone Baribeau

Edolphus Towns, the Chairman of the House oversight committee, today said he would subpoena the Federal Reserve Bank of New York for documents related to AIG counterparty payments.

“To help the Committee’s investigation of payments made by AIG to its counterparties, I am issuing a subpoena today to the Federal Reserve Bank of New York. This subpoena will provide the Committee with documents that will shed light on how and why taxpayer dollars were used for a backdoor bailout.” 

By Jude Webber

With Argentina mired in an unprecedented crisis sparked by government plans to use central bank reserves to pay off debt, a New York judge has frozen $1.75m of the bank’s assets held in the US Federal Reserve at the request of two so-called vulture funds.