Re: Conveniently forgetting Trump's first term too?***

- - - will be a major reason for why our new T-Bond will not go well (I.e., will require us to use higher interest rates to induce Japan to buy them).

Why does this matter to TNet’s political board lurkers? Because America’s refinancing of the ~ $9T of maturing debt this year will be at interest rates noticeably higher than what Trump-47 admin had hoped. Japan is, by far, the largest (historical) foreign buyer of US T-bonds. Japan’s future purchases will require T-bond interest rates to be a good deal higher than what Japan was historically happy to pay.

Higher interest rates (which America will pay for new buyers of US Treasury bonds) will eat into money that we want to spend via the Big Beautiful Bill.

I can’t see how continued frantic government spending to goose the stock market (as it worked successfully during Biden Handlers Admin) will work during years 2 through 4 in Trump-47 admin. Debt service, because we’ll have to pay higher interest rates on new issue T-bonds in order to get buyers of bonds (both foreign and domestic) to buy our bonds.

Steep recession is likely. I hope I’m dead wrong.

https://www.theburningplatform.com/2025/06/24/the-japan-shock-how-the-worlds-biggest-creditor-could-cripple-us-markets/

RememberTheDanny

Clemson Conqueror [11889]

TigerPulse: 97%

Posts: 14563

Joined: 2021

Re: And how did we get here, RTD?

Jun 25, 2025, 8:54 PM

Not really.

The Japanese sovereign debt problem of today has been in the works for ~30 years. Japan was the first modern economy that issued lots of Yen denominated bonds which, after private & foreign buyers didn’t purchase a new issue of said bonds, had the Japanese treasury buy up the portion if the bond issue that wasn’t sold to ‘real’ buyers. (Among the biggest reasons for the inadequate demand for Yen based bonds was that Japan would stop the auction when the buyers which were willing to accept dirt-low interest rates were done.)

By doing this, Japan was able to fund (using funny money) their economy’s capital needs and yet not face the yearly budget expense of high payments on the interest owed to investors who had purchased those Yen based govt issued bonds.

This practice was also supported by the proclivity of Japanese citizens to be aggressive savers. Nearly regardless to how low the interest rates were, Japanese citizens (via their versions of institutions such as Schwab, Fidelity, Merrill Lynch, etc) kept buying them. This habit of Japanese citizens also helped to underpin the value of the Yen as a sovereign currency.

(America has gone Bigly in this practice of the Japanese govt over the past three years.)

Back to Japan. They were able to create the zero interest rate Yen based bonds via a modestly complicated scheme involving currency arbitrage-esque scheme against the U.S. dollar. This arbitrage-esque scheme worked as long as the Yen predictably depreciated vs the US dollar by ~2%+ every year. This scheme led to Japan buying huge quantities if US Treasury bonds each year.

The fun and games appear to be over. Japan can no longer sell enough 0% interest Yen based bonds. Thus, the sharp increase in Yen-bonds interest rates which are in the ~2% range. Furthermore, the Yen is no longer reliably decreasing in value each year … or not decreasing by large enough percentage … vs the US dollar to make that arbitrage-esque scheme work.

(*). The upshot is that Japanese purchases of US Treasury T-bonds is almost certain to shrink; this will be terrible for refinancing America as the ~$9T of outstanding T-bonds matures this year. We’ve got to borrow new money to pay off those coming-due T-bonds. The only way iut (as I see it) is for America to pay far higher interest rates in the new-issue bonds … which will be used to pay off those low-interest rate bonds that are coming due.

(*). ^^^^^ this ^^^^^ will represent the biggest annual line item increase in the federal budget moving forward.

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