Note to BoJ: Try Something Different or Look Perpetually Foolish

The Bank of Japan today offered to buy unlimited 10-year bonds at 0.11%. I have a suggestion: buy 100% of them.

ZeroHedge notes the offer drove down yields by all of 0.05 percentage points.

The line in the sand is clearly 0.11% and that line has not changed for months.

On July 10, 2017, the Financial Times reported "central bank drawing line in the sand for 10-year benchmark."

The feature image is not from today. It's from July 10, 2017.

What's the Message?

  1. That Japan cannot take interest rates higher that 0.11%?
  2. That 1 basis point on 10-year bonds matters?
  3. That Japan cannot destroy it's currency after years of trying?
  4. All of the above?

I Can Help!

Japan should stop mickey mousing around and buy all of the bonds. However, there may be reluctant sellers. After all, 0.11% for 10 years must be extremely attractive.

To make 0.11% less attractive, all Japan has to do is tax bondholders 1%. Bondholders would dump their bonds immediately, if not sooner, and the Bank of Japan would own 100% of them within a day.

My proposal is not new. I suggested the same thing on April 22, 2016, in Mish’s Sure Fire Proposal to End Japanese Deflation: Negative Sales Taxes, 1% Monthly Tax.

Mish’s Four Pronged Proposal to End Japanese Deflation

  1. Negative Sales Taxes
  2. One Percent Tax, Per Month, on Government Bonds
  3. National Tax Free Lottery
  4. Hav-a-Kid

Please click on the above link for further details.

​My Price

My price for this amazing plan is $0. It’s free for the taking.

Yet, zero seems woefully inadequate for such a brilliant plan that is absolutely guaranteed to work, especially when Japan has tried and failed for decades to produce inflation.

Thus, if offered, I will graciously accept $1,000,000 for each one-tenth of one percent rise in Japanese inflation if Japan simply follows my plan.

MMT Thoughts

Today, I add pertinent MMT thoughts.

After the BOJ corners 100% of the bond market, it can cancel the public debt declaring it null and void. After all, the BOJ would truly owe the money to itself.

Next, Japan could hand out enough free money so that all private and corporate debt is cancelled as well.

This would be an excellent test of the MMT theories "we owe it to ourselves" and government spending does not matter.

What could possibly go wrong?

Mike “Mish” Shedlock

Well at least they don't have to worry about an inverted yield curve.

I know what you wrote is satire, but, it wouldn't shock me if some or all of it actually happened. I wonder why every country that uses a major currency doesn't do the same. Why doesn't the fed create $30 trillion and over say the next 10 years, buy up all the US gov't debt. Why not print another $30t and buy up all the mortgages and student loans to boot. We could basically have one bank, the federal reserve that handles all loans, deposits, credit cards, etc... . Do away with Chase, Wells Fargo,... once and for all.

Well the BOJ has been the petri dish all other central banks have been watching. They might as well push the outside of the envelop and see how far they can take this experiment. Kuroda could beome the Chuck Yeager of central banking!

The myth promoted by the central banks that a major currency cannot fail is accepted as fact by many people however, the rapid demise of either the yen or the euro is all that will be needed to reveal the truth. When a major currency fails it will remind people everywhere that our system of fiat money is held together only by faith in the system and a prayer.

Japan's public debt, which stands at around 250% of its GDP is the highest in the industrialized world. In the future, Japan's debt can only be addressed by printing more money and debasing the yen. The article below explores how when Japan crumbles it will be felt across the world.