Japan's Marshall Plan: Write off US Treasury holdings

A Bloomberg report quoting Akio Mikuni president of the rating agency Mikuni &Co. provides a possible way out of the current mess. While he speaks paricularly with respect to Japan, his suggestions can be implemented by other countries which have a major dependence on US for its exports and are heavily invested in US treasuries. He says:

1. Japan should waive or write-off US Treasury holdings as it is likely that US government will find it extremely difficult to service them.
2. Given the size of its budget deficit and the potential amount of borrowing it needs to do will put tremendous pressure on the dollar, which he sees at 50 to 60 Yen if such measures are not taken.
3. Japan also should invest in the infrastructure, roads and bridges that the US plans to help create jobs and support personal spending.
4. Such an 'out of the box approach' is only likely to save countries like Japan which are dependent on US consumers. In this sense it is a current sacrifice to protect the long term interest of the Japanese economy.

This sounds very interesting and if implemented could be challenging for Japan (it has $976.9 billion in foreign-exchange reserves). China may be better placed, but given the political angle this may not be possible. The US, it appears, has to be 'doled out' while its government is busy ''bailing out'! Watch out, as any such move may bring life back to the markets.

Disclosure: No stocks discussed - No Positions.

Comments

[a fat panda:]

Out of the box? This is the box, only bigger. If the answer to our problem was government subsidizies, I think that the problem would have been solved long ago. The only difference between this idea and what we have been doing is the names on the checks.

2008 Dec 25 11:09 AM

[Bill Jencks:]

Your basically saying that Japan should 'write off' $1 trillion in US Treasuries and invest in America in order to save America. But since the American Markets have caused this worldwide financial problem, perhaps there's another way.

What if Japan SOLD off all her dollar reserves and Treasuries instead and bought, say, Euros ? The next thing to happen would probably be that China would sell all her reserves($2 trillion) with the Mid-East and Europe quickly following suit for their very own survival. And so, America would probably go bankrupt.

Then Europe and Asia could implement their own 'Marshall Plan' and save America, thereby kicking out the dollar as the world Reserve Currency(and all the unfair advantages that this brings) and, instead, have the US pay for every other country's Fiscal Debt in the same way that the Rest of the World has been paying for the US Fiscal Debt since the 1970s when the US went off the gold standard.

A damn good lesson.


With China rapidly rising - and with a population of over 1.5 billion - who needs the pawltry US market ?

2008 Dec 25 11:43 AM

[Moon Kil Woong:]

Bill Jencks: That's a scary thought. Very very Grinch-like. Can I go cover my head in a TARP again please?

Right now, thanks to foreign governments, market participants are trying to stabilize the imbalances, however, as time wears on and things get worse, it is possible they start acting purely in their own interest like they did in the great depression. Which essentially encourages worsening of economic downturns.

Having foreign holders holding a great percentage of your debt is always bad, ask SE Asia and Latin America what happens when foreign creditors say stop to the musical chairs of match the money supply with the debt. Austerity program is the word that comes to mind.

2008 Dec 25 09:37 PM

[iyamwutiam:]

We forge that 60-70 percent of the US debt is being held by the 'Federal Reserve'. Simply put -they will -issue Treasury Notes- that will be bought by 'created' money by their member banks (Chase-JP Morgan/Citi/UBS/BOA)- as they have done in the past.

In return - we will get MORE privatization (roads and bridges beig sold off), airports and their rights being sold off- and end up in a version of Robocopwhere the corporations own everything-mainly the bankers.

As for this fantasy of Japan writing off the trillion dollars-so as to ensure 'future' prosperity for itself by continuing to sell items in the US - why not-only the masses of Japan and Germany are stoopid enough to think that they are 'independent' countries when over a 100,000 US troops have been stationed in their 'independent countries for over 50 years!! Sheesh -how dumb can you get.

2008 Dec 25 11:54 PM

[Jim Myrtle:]

Not even close. Until recently, the Fed's balance sheet was less than $1 trillion. Compared to $10 trillion in US debt, that was less than 10%.


On Dec 25 11:54 PM iyamwutiam wrote:

> We forge that 60-70 percent of the US debt is being held by the 'Federal
> Reserve'.

2008 Dec 26 01:23 PM

[Hmm?!:]

Actually there was over 45% percent foreign held US treasuries as of 2006.

Source: Federal Reserve Z-1

or check prudent bear.com


On Dec 25 11:54 PM iyamwutiam wrote:

> We forge that 60-70 percent of the US debt is being held by the 'Federal
> Reserve'. Simply put -they will -issue Treasury Notes- that will
> be bought by 'created' money by their member banks (Chase-JP Morgan/Citi/UBS/BOA)-
> as they have done in the past.
>
> In return - we will get MORE privatization (roads and bridges beig
> sold off), airports and their rights being sold off- and end up in
> a version of Robocopwhere the corporations own everything-mainly
> the bankers.
>
> As for this fantasy of Japan writing off the trillion dollars-so
> as to ensure 'future' prosperity for itself by continuing to sell
> items in the US - why not-only the masses of Japan and Germany are
> stoopid enough to think that they are 'independent' countries when
> over a 100,000 US troops have been stationed in their 'independent
> countries for over 50 years!! Sheesh -how dumb can you get.

2008 Dec 26 04:21 PM