by Mike Whitney, The Unz Review:
A cratering yen has set off alarms on Wall Street and in financial centers around the world. If the Bank of Japan sells its behemoth stockpile US Treasuries (now exceeding $1.2 trillion) to support its sagging currency, the US bond market could go into a nosedive dragging the global economy off a cliff. That is why on Friday, July 31, US Treasury Secretary Scott Bessent launched an unprecedented currency intervention to prop up the anemic yen and to forestall an impending financial meltdown. Surprisingly, Bessent implemented a euros-for-yen trade via the New York Fed so as not to weaken the dollar or trigger a selloff in bonds. The gravity of the intervention, however, was not lost on jumpy investors who have connected the dots and understand that America’s $40 trillion debt Ponzi is growing increasingly unstable and could trigger another financial crisis. In short, the teetering yen is merely the canary in the coalmine signaling deeper structural issues that could take down the entire dollar-based house of cards. This is from Forbes:
TRUTH LIVES on at https://sgtreport.tv/
The wobbling Japanese yen could trigger a global financial crisis…. The yen recently reached a 40-year low against the dollar. The fear is that a further fall in the currency’s value will precipitate a crisis of confidence that will not only set off a serious bout of inflation inside Japan…. but also adversely impact financial markets around the world.
That’s why the U.S. and Japan just undertook a very rare joint intervention in currency markets to prop up the yen. In other words, both countries used dollars to buy the yen.
The intervention has had success. However , most experts believe the relief will be short-lived because of adverse fundamentals in Japan: a too-low short-term interest rate, which is 1% vs. around 3.5% in the U.S.; a national debt that is proportionately twice that of the U.S.; rising energy prices; and a declining and aging population.
The immediate worry for U.S. Treasury Secretary Scott Bessent is that in an effort to save the yen from collapse, Japan will start liquidating its $1.1 trillion portfolio of Treasury bonds and bills, not to mention its holdings of German and British bonds. Such sales would put pressure on interest rates. After all, financing our immense budget deficits and refinancing some $7 trillion of our existing debt that’s coming up for renewal are already worrying the markets. This anxiety, for instance, is why the interest rate on our 30-year Treasury bond has reached its highest level in almost 20 years.
Bessent wants the Federal Reserve to beef up a facility it created in 2020 to deal with a dollar shortage caused by the pandemic and use it now to help the yen. He could also employ a Depression-era facility called the Exchange Stabilization Fund. The idea is that through these devices Japan could borrow dollars using its Treasury holdings as collateral. No sales necessary.
This help is nice, but there are better, more immediate ways to deal with the crisis. Japan should boost its utterly unrealistic short-term interest rate…. Another important thing that both the U.S. and Japan should do… is to announce that they want a stable rate between the dollar and the yen. They might even give a range of, say, 150 to 155 yen to the dollar and make clear that the two countries would massively intervene in the exchange markets to keep it there. Japan would, if necessary, reduce the supply of yen to keep it in that range. These steps would quash the immediate crisis. Japan’s Wobbling Yen Could Trigger A Global Financial Crisis, Forbes
The United States and Japan are already massively meddling in the market to scare off short sellers who don’t think market fundamentals support a strong yen. In effect, Bessent is saying that if they bet against the yen, they will be crushed by the combined firepower of the Fed and its ally in Japan. In other words, anyone who invests believing that the market is “free and fair” will be clobbered.
Second, the “facility” to which Forbes refers, is another Fed-generated bailout outfit similar to ones created during the Great Financial Crisis.
It is called The Foreign and International Monetary Authorities Repo Facility or FIMA which is operated through the Federal Reserve Bank of New York “To help prop up the yen with dollar loans” in order to discourage Japan from dumping its US debt.
