Japanese Debt Wipeout – Can They Get Away With It?

Featuring Bill Fleckenstein

Bill Fleckenstein runs through the potential impact and fallout of a debt jubilee by a G7 member, suggesting Japan is a more obvious candidate than the US. In conversation with Grant Williams, Bill runs through the likely repercussions of such a move, nearly a decade into the black hole of finance. Plus, we also get to hear the legendary short seller’s assessment of today’s insane markets. Filmed on October 19, 2017, in Oregon.

Published on
25 October, 2017
Topic
Monetary policy, Investment Framework, Macro
Duration
31 minutes
Asset class
Equities, Bonds/Rates/Credit, Currencies
Rating
57

Comments

  • TT

    Timothy T.

    19 12 2017 11:58

    0       0

    Well if Japan does a debt jubilee, it will basically expose to everyone the fiat is WORTHLESS, so aptly put by Bill. And seriously, there are countries where currencies had hard backing. The question will be how it will impact investor AND public psychology on fiat. It would well end the fiat experiment, that was started in 1971. I suspect any debt jubilee will be followed by a return of to a Bretton-woods system.

  • DF

    Dominic F.

    18 11 2017 02:07

    0       0

    You only have to pay off debt if you are Greece or Venezuela? Depends who is calling in the debt ;-)

  • SS

    Scott S.

    3 11 2017 16:48

    7       0

    Every single person on this thread is missing the point. Why on earth would they need to do a debt jubilee or wipe-out? Who cares what the debt number is? If you have a debt that you do not have to service, then you do not have a debt! Think about it, when the government makes a coupon payment to the BoJ, the BoJ immediately remits it back to the government. The government is effectively not servicing the portion of the debt that the BoJ owns. Debt is a problem when you have to service it out of income, using income that could be better spent elsewhere. If you don't have to service it, it does not matter. If the BoJ owns 100% of the JGB market, the debt can be 900% of GDP. Who cares! Will they get away with it? They have already gotten half-away with it (owning almost half of the market). Why risk tipping over an apple cart just to make the number go away?

  • CS

    Chris S.

    2 11 2017 15:46

    1       0

    Great interview! The Debt Jubilee idea is indeed mind-boggling. I was wondering, what is actually the difference between replacing the existing debt by a perpetual bond with 1bp or just indefinitely reinvesting matured bonds if rates stay at zero anyway? Isn't this basically the same thing? And then, aren't they already doing it already?

  • TC

    Tim C.

    2 11 2017 03:13

    3       0

    To me, it's pretty clear that Japan has no other choice than to eventually do a debt jubilee. Everything points in this direction, when you think it through. So - yes please - let's talk about all the possible ways this could play out. Only 1 or 2 minutes of the interview actually directly explored the possible scenarios. We need much more.
    For those of you who say: "No! never! It's impossible for them to forgive the debt!", I say: You have lost your mind. Of course they can. If it is in the interest of the nation to do so, they will do it, and nobody can stop them... As Fleck states the obvious, their current debt level is well beyond the point of being serviceable. It broke through that level years ago. They continue with the world's largest QE/money printing program program, not by choice, but by necessity. They are forced to continue printing these huge sums each month - to pay off the exponentially increasing interest on this growing mountain of debt, with an ever-shrinking population and ever-shrinking taxation revenues. If they stop printing, bonds collapse, all their assets collapse, citizens savings and pensions collapse. They cannot possibly stop. The fact that a simple forgiveness of the debt between the Treasury and the Central bank suddenly reduces their debt/GDP ratio from astronomical levels to the best in the developed world seems unfair, unimaginable - but for the same reasons - basically inevitable. They would be crazy or stupid (and the Japanese are neither) if they didn't take this option....But what could the fallout be? That's what we need to explore more.

  • KJ

    Kyle J.

    31 10 2017 18:58

    0       0

    Stop the insanity!!!!

  • ES

    Edward S.

    30 10 2017 23:44

    2       0

    Haha, he called NVDA "some of the kinkier stuff". Indeed, that stock is batshit crazy.

  • J

    J. .

    30 10 2017 02:31

    0       0

    Be written off? In the meantime they will pay interest in decreasing amounts. Might work for the huge debt problem.

  • J

    J. .

    30 10 2017 02:28

    0       0

    Land was returned to the original families. Therefore all prices were set in relation to how close the Jubilee year to any transaction.
    Question what if BOJ or others said in 50 years these debts wil

  • J

    J. .

    30 10 2017 02:24

    2       0

    Defintion is important. "Debt Jubilee" is an ancient Jewish economic and religious system where once every 50 years ( after 7 Sabbath years) all debts were retired, bondservants were released and all

  • JK

    Jon K.

    29 10 2017 17:21

    30       7

    Broken record. I was such a huge fan of Real Vision, the concept was so needed and welcomed. However, they haven't delivered on the "vision"...and someone please put Grant in "Gold Rehab".

    I intellectually agree with the overall points being made here, but why is so much bandwidth being used to talk about something, which both participants in this interview agree, is so far down the track. Yes, the central bank experiment is ludicrous and has created a huge wealth gap, and "when" the music stops it will be an ugly day, and things will likely get even more ludicrous.

    However, markets have reached all-time highs again and again and again...which has been the case NOT because everyone outside of the Kyle Bass ranch circle is dumb. There has been a lot of smart investors who understood the lunacy of central banks, weighed the risks, went long, and have been laughing all the way to the bank. Many of them did so with very well-thought out investment themes. Real Vision makes it seem like it is just a bunch of dumb retail buying passive ETF's.

    The comment "a lot of smart people on Real Vision" is old and tired. These same "smart people" knock the Central Bankers for being nothing more than "academics", yet the majority of what I hear on RV is nothing more than people pontificating about the end of the world...oh wait, sorry "a world on the brink".

    Investing, I thought, was about making money...not about sounding smart and missing one of the largest bull markets in history. I guess after three years I thought by now there would be some diversity in the Real Vision programming, and I am not talking about BBC style documentaries, I mean people of diverse opinions weighing in on the same subject so the Real Vision community can actually be challenged in our thought process. Instead I feel like I being fed bearish dogma, which has been wrong...early is not a hedge, EARLY is WRONG in the world of investing.

    In case I wasn't clear, I agree with the general Real Vision sentiment, things are speeding towards a wall, but in the meantime how does one trade that environment, instead of constantly talking about how horrific the wall will be "when" we hit it.

    I have really tuned out of Real Vision lately, and when I decide to check back in I see an interview with Peter Schiff (really??) and then this interview (I dig Fleck though) which really doesn't provide any actionable insight.

    Hoping things turn around at RV...soon.

  • PM

    Paul M.

    29 10 2017 08:11

    1       0

    Very thought-provoking interview - if that's what RV was after they hit the jackpot! Regarding jubilee idea itself, it sounds kind of crazy but what is the definition of 'crazy' in the world of negative rates and ever-expanding CB balance sheets used to prop up risk assets?

    The question I have is this: surely if governments 'retire' their debt, this will have a direct impact on Central Banks? In a jubilee scenario, assets on CB balance sheets suddenly evaporate, shrinking them against money supply created for QE purposes. This inevitably leads to local currency devaluation as this excess ("unbacked") money supply becomes instantly inflationary. I doubt the argument for the ability of a Central Bank to destroy the actual currency has merit because the money itself is never returned to the CB and surely has to be booked as a liability on Treasury side. It's an accounting problem.

    Another potential difficulty with jubilee scenario is a clear possibility of an instant liquidity loss. Since government bonds are benchmarks, any such 'retirement' would have direct implications for a huge amount of structured products. It is also the best collateral there is when it comes to borrowing against in local currency so imagine there is no market for these all of a sudden? Or there is but it is infinitely smaller? Sounds problematic to me.

  • DS

    David S.

    29 10 2017 05:40

    0       0

    Thanks RV, interviews like this is why I subscribe to your service; apples and oranges difference to the crap disseminated by Peter Schiff that you had on last week

  • RM

    Robert M.

    28 10 2017 07:26

    2       0

    It is net gov debt/GDP that is important to analysing Japan, not gross.
    In 2015 these numbers were 132% (not that much more than in the US) and 245%.
    https://www.forbes.com/sites/mwakatabe/2015/01/18/japans-fiscal-situation-is-not-as-bad-as-many-assume/#5a1c395055f0

  • TB

    Tad B.

    27 10 2017 20:11

    1       0

    Great interview....
    Has anyone noticed that AdvisorShares have canned the GYEN etf (long gold & short yen) ?
    This is a big disappointment to me as it was one of the cornerstones of my portfolio, (decoupling is BOUND to happen some day). That aside, the etfs that shorted JGBs & went long their yields were taken off the market shortly before the BOJ announced their 'yield curve smoothing' policy...
    Perhaps this is a real sign that JUBILEE is about to happen/attempted.
    Anyone got another way of shorting YEN against GOLD ?

  • RF

    Richard F.

    27 10 2017 07:56

    5       6

    Being a 'legendary short seller' is like being a man who only goes outside when it's raining because he only has a raincoat. It seems unimaginative, decidedly un-legendary and hardly the mark of a good trader. However, it is always interesting to hear Mr Fleckenstein.

  • BW

    B. W.

    27 10 2017 03:16

    8       3

    If the currencies are all worthless, then I will send you my checking account and routing number information and you can transfer me all of your savings, and I will send you a case of beer (which is not worthless), and you win. Sound good? Or maybe on second thought, the currencies aren't all worthless?

  • LK

    Lyle K.

    27 10 2017 01:20

    5       0

    Would be cool to see a group of of RV guests like 6 or 7 get together on a macro theme and lay out the theme whether a historic event or one that may happen in the future and dissect it into many pieces and how their job titles would of applied and how the group would of made a trade idea outta it. Like the presidential election of 2016 would be a good one to take apart and try to experiment with the possible outcomes on the markets and currencies. Would be cool to have people like Nancy Davis,R.P. Eddy,Kyle Bass,Michael Green,Raoul Pal all come together for it :)

  • MW

    Matthew W.

    26 10 2017 22:53

    4       0

    One of the factors I always struggle with regarding the debt jubilee idea is that the liability side of the central bank balance sheet is private bank reserves. So, if you wipe out the government debt (central bank asset), you would also be wiping out bank reserves (private bank asset). At any rate, someone would have to take the capital hit. Either central bank or private banking system. I guess central bank could technically operate with negative equity, and no assets, in order to maintain reserves. But not sure how that actually solves the problem.

  • SD

    S D.

    26 10 2017 22:38

    4       0

    It's not adequate to raise the issue of a debt jubilee and just say the currency might get schmucked. If central bankers - not the most credible bunch at the moment - are seriously considering this, it'd be helpful to have a better understanding of potential consequences. I guess that's why the speaker is encouraging feedback on the idea. Ultimately the risk is that such a move would shred any remaining credibility from the group that have dragged through the looking glass to a place where actions and consequences seem to bear no relation to each other.

  • RA

    Robert A.

    26 10 2017 21:00

    3       0

    David Zervos, I believe, was one of the first to articulate the debt jubilee thesis?

  • CL

    César L.

    26 10 2017 20:21

    1       0

    I really like the interviews with Bill. I think that listening to his and Russell Clark's short selling framework adds a huge amount of value.
    The only question that I have is why not take advantage of the dynamics that Chris Cole and Nancy Davis discuss and use options to structure bearish trade ideas. You know your maximum downside beforehand and keep the asymmetric payoff.
    Maybe is the usual negative carry, or the lack of longer term options/liquidity...

  • TK

    Thomas K.

    26 10 2017 19:19

    28       0

    Two smarts guys in a room talking in depth about an interesting topic - debt jubilee in this case. That's all I want from RVTV, not showy productions, international locations or hyped up trailers. This sort of interview is what has kept me with RVTV from the start but the recent content up until this one has left me scratching my head as to why RVTV haven't realised that "if it ain't broke, don't fix it".
    I have turned off most of the recent content within minutes so although this one is far from RVTV's best at least it is in the right area.

  • GS

    George S.

    26 10 2017 19:03

    2       0

    Extremely clear, honest and engaging interview. Incredible!

  • SB

    Stewart B.

    26 10 2017 18:51

    2       0

    l1) Great interview, both questions and answers.
    2) I think everyone should ask themselves why a (public) Debt Jubilee is actually required. Currently the yield from QE assets is remitted to the treasure. In physics and economics, part of the analysis process is to draw a boundary around a system. In this case the boundary is to be drawn around the central bank and the government. Let's call this the 'State'. There is no reason why public debt couldn't be 2000% of GDP provided that the central bank had at least say > 1900% of GDP of assets (and continued to pay enough into treasury to cover the cost of servicing the public debt). Sure, there is a nice and warm feeling in a Jubilee, but it isn't necessary. It is worth noting too that QE hasn't been hugely inflationary as the amount of money printed has been relatively small compared with the amount of broad money in the system. Additionally tightening regulation on banking has also added a deflationary force. QE doesn't stimulate an economy (in the most part). It's purpose is to provide assets to offset public liabilities. This is the new 'State System'.
    3) We are paying the price of QE through inflation (or forgone deflation) now. Every time you have falling real wages, you are paying for the central bankers assets. In many ways it is debt monetisation (State system: treasure + central bank) by stealth.
    4) The real danger is once we get to a situation where they have pulled it off (ie central bank assets are about the same size as public liabilities), the real danger will come when the politicians realise have no incentive to control their spending at all. This will be the end.

  • SD

    S D.

    26 10 2017 18:19

    1       10

    I found this interview difficult to listen to. This is annoying because the interviewee had some interesting things to say, but they were obscured by poor delivery and a lax interview style. Some people do not speak or communicate well via audio or video, this is simply their mannerism, which means the interviewer has a responsibility to adapt to make sure viewers and listeners actually have an opportunity to hear what the interviewee has to say.

  • cr

    colm r.

    26 10 2017 17:21

    17       0

    I'm afraid Grant and Bill need to get to grips with what QE actually is and how it works. Once they do that they will arrive at the simple answer as to why this type of policy cannot work. It's a balance sheet exercise by the CB. A CB creates electronic money to buy interest bearing securities from the government's treasury (they buy them via primary dealers). The increased cash (a zero interest bearing security) credits commercial deposit accounts and is the CB's liability. The bond becomes the CB's asset. So yes, the monetary base which is a narrow measure of notes and coins in circulation expands, but the broader money aggregate which includes interest bearing securities etc does not. Effectively the CB is lowering the duration of the broader aggregate by substituting interest bearing securities for zero interest cash. A large chunk of this cash gets deposited back at the CB anyway in the form of excess reserves. The point to understand is this. When a bond on the CB's balance sheet matures or rolls off, it has to be redeemed by the issuer...the Treasury. So the CB receives back it's liability (cash it created) and loses it's asset (the bond it owned)...so there is no net change to it's balance sheet. It may incur some capital loss but let's keep things simple.
    Now....what happens if, instead of receiving back it's cash, the BOJ says to the Treasury....we don't need it...we're going to forgive it, by creating a 100y or 200y perp bond...so we still technically have an asset on our balance sheet. Then ALL the newly created Yen used to buy the entire bond market stays in the system for the length of maturity of that new bond. This is hyper-inflationary and long before we ever got to that point there would be a complete destruction in the value of the Yen versus harder currencies and gold. Velocity would explode as every owner of Yen and Yen denominated assets scrambled to buy hard assets. Yen rates would explode...the value of the bond on the BOJ's balance sheet would crumble...etc etc etc. Hope this helps...oh,and by the way, it's exactly what's going to happen IMO...can't see any other options for Japan now. Recent Yen strength is a massive fade.

  • CB

    C B.

    26 10 2017 15:57

    1       0

    Imagining how the central bank QE conundrum ends or unwinds is a fascinating exercise. RV should make this question a staple of every interview. My take: In the case of Japan, if the market knew that the BoJ wanted to buy all debt, JGB owners would hold out and refuse to sell until the price went much, much higher. This would also drive other yield bearing assets through the roof in the pursuit of real yields. The question then becomes does this asset inflation work its way into the real economy? Is the outcome stagflationary? I would be wary of anyone predicting a free lunch here. There has to be a cost to tinkering with the soundness of a currency. If citizens start questioning the soundness of the yen (or dollar, or euro), there will be a scramble for other currency-like instruments (bitcoin, gold, etc) that can hold their value.

  • JH

    Jesse H.

    26 10 2017 09:53

    3       0

    Great - self-effacing Fleckenstein, yet some fascinating commentary on future scenarios and his approach to short-selling. Very important point, it seems to me, about getting the micro environment right on the short side (e.g. Apple), yet losing out due to other factors in the macro environment.

  • TM

    Todd M.

    26 10 2017 08:53

    2       5

    Huge fan of RV - please keep a perspective of the difference between this deep thoughtful reasoned interview and the Schiff Gold palooza you recently aired in 3 full technicolor episodes! Agree with Bill or not - the quality of thought, intellectual integrity and depth makes your Schiff videos look like pitiful hack discourse. As you increase content the risk of chumming the water increases. Rock On!

  • PJ

    Peter J.

    26 10 2017 08:46

    1       0

    Cracking interview, always worth listening to Bill

  • sm

    sam m.

    26 10 2017 06:59

    6       0

    Great Interview.

    In most countries the Government will own the Central Bank so as soon as the CB purchases Govt Bonds it has effectively cancelled the interest burden since it owes the money to itself and pays the interest to itself.

    If instead of selling the bonds back into the private market the Govt tells the CB to accept a zero coupon perpetual (ie cash) or zero coupon 200 year bond in exchange for maturing or yet to mature bonds then the debt has been cancelled (or imposes no interest burden).

    The fact that previous money printing has occurred is not the problem (that money has already been created) - the problem is that the Government is then free to repeat this process and re-leverage from a clean balance sheet ... and our problem as investors is predicting how the market will react (e.g. who would buy a government bond at 1-2% yield if the Jap Govt now owed 0% GDP but could re-gear to 100, 200, 300%? My guess is that it would be at a high rate and a lower FX rate since no one would trust that the country's currency is worth anything ... but if all G7 geared up first and did it at the same time ... buy gold?)

  • BL

    Bruno L.

    26 10 2017 06:04

    0       0

    Broad noney doesnt change. Currency gets hit most and like past EM money printing episodes, equities stay elevated due to this currency debasement

  • BL

    Bruno L.

    26 10 2017 06:00

    0       0

    Government ends up financing itself thereafter. If Bond holdings convert to cash then balance sheet of central bank stays intact (as does liability side due to excess reserves or deposits) and broad

  • BL

    Bruno L.

    26 10 2017 05:58

    0       0

    The question of what happens in a government bond debt jubillee can only be answered by thinking about what the central bank does with the money already created thats in the system and how the governm

  • AD

    Anthony D.

    26 10 2017 03:59

    0       0

    Please people relax. This was a delightful, fun and informative chat between friends. Non-stop quantum mechanics lectures will fry your brain. I look forward to a similar format when Grant asks the next "smart person" to address his/her notion of a Sovereign debt jubilee.

  • CR

    Chad R.

    26 10 2017 02:47

    1       7

    The obvious question here is if Grant Williams doesn't watch Real Vision why the hell should you?

    Apparently, he missed the David Zervos interview.

    Is it too much to ask for some continuity with respect to topics discussed?

  • JM

    Jim M.

    26 10 2017 01:10

    0       0

    I love the new bumpers for the videos (although they're really not that new) but now we have new DP's too? Dirty singles!

  • AG

    Austin G.

    26 10 2017 00:11

    13       1

    Maybe we are in a complacency bubble that started in the 40's. AS debt got piled on and nothing happened people got complacent. We have entitlement programs, we have central banks that pump liquidity into the system when things get screwed up, debt keeps rising but nothing bad happens. So everybody acts as if things are ok. Precious metals don't skyrocket because people are not worried, besides, for the time being it is all about cryptocurrencies. It makes me think of how the magician distracts people with the left hand while the real action is with the right hand. But people chase bitcoin out of greed and also not being fearful i.e. complacent. Show the big question for me is "What happens when this complacency bubble pops and people become fearful and not trusting others? When they want something they can hold in their hands and hide somewhere." My guess is that when that happens, the charts of PMs will look like the chart of bitcoin. When will the complacency be replaced by fear? I don't know but it can't go on forever

  • JV

    Jason V.

    26 10 2017 00:11

    35       3

    RVTV is nothing short of brilliant. But I can't help thinking it's currently experiencing a serious bout of 'shrinkflation'. The core product, and previously real strength, of RVTV was its in-depth, hour-long interviews. Recently these have been cut in half! Now when we 'open the box' we literally get 50% less. I'm surprised there isn't more uproar from us loyal customers.

  • SA

    Scott A.

    25 10 2017 23:43

    1       0

    Had I won the RV dinner this is exactly the question I was going to ask. Forget bonds, remember the 1 trillion dollar coin we were going to mint? Great topic.

  • pa

    peter a.

    25 10 2017 20:53

    1       1

    Thanks for another interesting interview! Question: is it not so that The CB’s liabilities are the banks reserves so that a debt jubillee would cause another banking crisis?

  • VP

    Vincent P.

    25 10 2017 19:34

    5       1

    Ha! I knew it. From Schiff to Fleck! These two guys are real smart but they've also been real wrong. At least Bill stepped up and he should get lots of respect and credit for that. I've followed both of them for years and also believe there will be a Minsky moment, debt jubilee or whatever you want to call it, in Japan and other places with signals clearly ignored by the sheeple.

    As far as Japan's currency, all it's debt and those ETF's??? Well, how about a tender offer for ETF shares not already owned by BOJ, take the COUNTRY private, restructure all companies and issue new Funds as "DETS" (Deceased Exchange Traded Shares). They can also devalue the Yen by at least 50%, restructure debt, issue new long term debt backed by Gold.

    I'm certain there's a BOJ member somewhere who wants to do this.

    Thanks Grant and Bill for a good interview. 'Nuff said.

  • CG

    Chuck G.

    25 10 2017 19:08

    4       0

    With all the rehypothecation, isn't gold just a sentiment game as supply (thanks to rehypo) isn't really all that limited?

  • JG

    Joseph G.

    25 10 2017 19:06

    6       0

    Can't beat Bill and Grant debating issues! World class conversation with some valuable insights.

  • SS

    Steven S.

    25 10 2017 18:59

    2       0

    Thanks for the tip Grant - I never saw this CNBC clip until now - gotta love our non-bias media experts offering Fleckenstein some first world wisdom!
    have a watch: https://www.cnbc.com/video/2017/10/25/watch-cnbcs-andrew-ross-sorkin-interview-a-lifelike-robot-named-sophia.html

  • HJ

    Harry J.

    25 10 2017 18:50

    1       0

    What will us cash be worth if we go down this road?

  • NB

    Nils B.

    25 10 2017 18:41

    1       1

    Super interesting topic but I would really like a Keynesianist perspective on this, since ultimately Keynesianists are the ones making these decisions at the moment and I would like hearing why they think it would or would not work.

    I also feel like comparing this to negative rates isn't really fair at this point since negative interest rates since contrary to what Fleckenstein said, there isn't anyone in Norway (or anywhere else for that matter) who gets paid to have a mortgage. If you google it I think you'll find some Danish family but they're rare exceptions and IIRC they're charged some fees making it a net cost. I'm not an expert so someone please tell me if I'm wrong, but my view is that the only reason negative rates work is because only banks and governments are able to take advantage of them. And why does that make a difference? Well, banks make money from the net interest spread between borrowing costs and lending revenue (which means it really doesn't matter to them how low rates go as long as the spread stays the same, if we're being simplistic), and governments are responsible enough (well...) for it to not get out of hand. Had any consumer been able to borrow at negative rates it would be a whole different story.

  • CY

    C Y.

    25 10 2017 18:31

    32       1

    Ignore the summary crowd who wants sound clips. I love the longer interviews. I could listen to this guy for hours..

  • NI

    Nate I.

    25 10 2017 18:05

    42       1

    Piling on to what others have said. If RV disintegrates into sound bite conversations like the mainstream media, then it's really no better. Please restore the 60 or 90 minute format to retain depth in the topics.

  • GF

    George F.

    25 10 2017 17:54

    1       0

    FWIW Bank of Japan is supposed to be privately owned. Although 55% is owned by the government.

    The Bank is capitalized at 100 million yen in accordance with the Act. About 55 percent of the capital is subscribed by the government. The Act states that "of the amount of stated capital set forth in the preceding paragraph, the amount of contribution by the government shall be no less than fifty-five million yen." The Act does not grant holders of subscription certificates the right to participate in the Bank's management, and, in the case of liquidation, only gives them the right to request distribution of remaining assets up to the sum of the paid-up capital and, if any, the special reserve. Dividend payments on paid-up capital are limited to 5 percent or below in each fiscal period.

    https://www.boj.or.jp/en/about/outline/index.htm/

    https://finance.google.com/finance?q=TYO:8301

  • JH

    John H.

    25 10 2017 17:49

    0       0

    Whether you write-off the debt or exchange it for something longer-dated, it doesn't change the fact that you print a ton of yen to acquire that debt. Those printed yen remain. Now, how do rates rise? The central bank says "rates shall be higher." No, still a ton of yen out there with everyone stepping on themselves to lend them. So, the central bank has to pay the higher rate if rates are to rise. So, if you consider the central bank and the government all as "the government," then it doesn't really matter -- the "government" still owes a bunch of debt, whether bonds, bills, or currency. Right? Will someone smarter than me tell me how that ends up?

  • AC

    Andrew C.

    25 10 2017 17:47

    1       0

    For a more precise description of debt monetization and the mechanics of a "debt jubilee" watch Ian Laming's interview with Lord Adair Turner from the FSA on RVTV dated November 15, 2016. This was also openly discussed at last year's Jackson Hole boondoggle.

  • AH

    Andreas H.

    25 10 2017 17:35

    0       1

    well, if the environment is not for shorting (Fleck said that on all his last interview), maybe its the environment to be long ;-)

  • JG

    John G.

    25 10 2017 17:28

    4       1

    If the Japanese Central Bank swapped the JGB's with the Japanese government for much longer maturity (like 100 year or 200 year) JGB's, where is the debt jubilee? There is still debt outstanding. It just has a much longer maturity, which substantially lessens the risk to the budget from higher interest rates in the future. The government could make the debt callable to have the flexibility to reduce it if they choose. In this case, there is no cash from the Central Bank money printing paying off the debt and that cash flowing into the banking system and, possibly, into the economy where it could cause a rise in inflationary pressure and downward pressure on the currency (yen). I actually think the lengthening of the bond maturities with much longer-term callable bonds makes some sense in a historically low interest rate environment, especially when we are only taking about the bonds help by the Central Bank.

    To me, a debt jubilee is the government paying off their debt with cash, either on hand or freshly printed. That is the scenario where I see inflationary and currency risk. What am I missing?

  • AH

    Andreas H.

    25 10 2017 17:17

    3       0

    Its going to bee even much more extreme, Central Banks will simply buy and let those bonds disapear. If you can print money, you can let bonds disapear (0 Percent, 200 Years). The new god is money, people believe in it as long there is no hyperinflation... They will print money, they will make bonds disapear until we are all red and blue in the face because they can and they can because deflation pressure is huge (globalization and tech revolution...)...

  • WS

    William S.

    25 10 2017 16:58

    4       1

    It occurs to me that whoever pulls the trigger first on a debt jubilee will not only set in motion a global move in that direction, but their currency is likely to end up the strongest the soonest. Which countries are currently positioned the best to effect a debt jubilee? It seems to me Japan and China are the answers to that question -- and in many ways, China may very well be positioned such that it can not only effect a wide-ranging jubilee, but do so while yet insulating the RMB against the bulk of the consequences.

  • PM

    Patrick M.

    25 10 2017 16:56

    6       0

    Thanks for the recap of Fleck's thoughts at what was a great conference. The content was superb. The potential for Jubilees was a hot topic at all of the dinner tables even if you didn't get to sit with Fleck. Running through the short selling checklist was invaluable. Other speakers echoed, and deferred to, Fleck's ideas of having the story right and still getting killed while trying to be short. Great conference, excellent speakers, timely content, wonderfully disciplined recap video. Thanks again.

  • BB

    Bill B.

    25 10 2017 16:52

    2       2

    Nvidia is a play on AI, machine learning, and self driving cars

  • DM

    Daniel M.

    25 10 2017 16:44

    4       0

    The Black Knight!!!

  • GH

    Gary H.

    25 10 2017 15:58

    13       1

    Excellent conversation. This is the most interesting question in finance. What is the ultimate consequence when bankrupt goverment central banks essentially fund the government as is happening everywhere in DMs and get to the point where they essentially own everything? The BOJ owns 75% of Japanese ETFs now and is the furthest along the ponzi road where the central banks essentially nationalize the economy. I always just assumed the currency would be worth less or worthless. Maybe not. Please continue to discuss this question RV

  • RM

    R M.

    25 10 2017 15:12

    7       0

    Good question, worthy of a panel discussion, please invite Steve Keen as part of it!

  • EM

    Emre M.

    25 10 2017 14:48

    6       11

    I think Gold part is too short. Every RealVision interview should have a mandatory 25 minute part about how gold is going up.

  • RM

    Richard M.

    25 10 2017 14:32

    30       0

    Wow, fantastic discussion! But please take the hints from the earlier comments and get back to your really informative deep-dive segments that are an hour long (or at least with your super star guests such as Fleck)! Many thanks, Rick

  • JS

    John S.

    25 10 2017 12:37

    57       0

    Restricting Fleck to 30 mins is nuts!

  • DS

    David S.

    25 10 2017 12:09

    9       0

    David Zervos has talked about JGB debt jubilee as well fwiw

  • RI

    R I.

    25 10 2017 11:54

    58       13

    These 30 min or less segments have become irritating.

  • JS

    John S.

    25 10 2017 11:15

    9       0

    Look forward to many more conversations about the potential for a debt jubilee.

  • MS

    Matt S.

    25 10 2017 11:12

    6       6

    On gold vs. cryptos...................

    You can't fork gold.

  • PU

    Peter U.

    25 10 2017 10:44

    1       9

    I will be joining this conversation

  • MS

    Matt S.

    25 10 2017 10:43

    7       34

    I haven't even watched this yet but I just wanted to be the first to comment.

    : )