Bitcoin Explained: All you need to know about Bitcoin

I think This video sums up what I think about bitcoin, I was recently suspended on Twitter for telling @maxkeiser that I thought his Bitcoin Fantasy was equivalent to Ass Pennies. He rallied his supporters to report and suspend me! What a douche. Anyhow I got my account back and went on to explain 6 different ways Bitcoin could flashcrash overnight and 10 different ways Bitcoin is a Ponzi Scheme .. check out my twitter page, handle is @nickj4848. I guarantee you will enjoy following my twitter.

Harpooning oneself in the foot: The Japanese Bond Market Bubble, by Ah0707

Since the post-WW2 period Japan has had 3 financial bubbles, two of which that have popped in dramatic style. In 1989, the Nikkei 225 Stock index had risen to a peak of 38.957.44 points only to have collapsed to below 8,000 points by 2003. Around this same period, the price of Japanese Real Estate had fallen faster than an elephant after being kicked out of a plane, with prices falling by as much as 99% in Tokyo’s financial district. The combination of these bubbles popping had wiped out tens of trillions of dollars, or more than half the world’s GDP to put it into context.

These two bubble pops, however will pale in comparison to the next one coming: Japanese Bonds. To set a bit of context, the Japanese government, in order to stimulate the economy back in the early 90s, had effectively begun printing money (issuing bonds) at such a frenetic pace (and has continued unabated for the last two decades) that the amount of government bonds issued far out-stripped the amount of tax revenue they receive from Japanese citizens. At the moment Japan’s government gross debt sits at 240% of GDP (More fun if we start talking though in terms of Yen, Quadrillions of it). 

While even getting to this mark does seem logically-defying for any rational thinking human being, what made this possible up until now were three key factors: A large pool of savings, low interest rates, and a postive trade surplus (earnings from exports are greater than the costs of imports).

At face level, the following statistics could put one’s mind at ease that there is no crisis to really worry about: Japanese have $19 trillion dollars in savings and 90% of Japanese Government Bonds are held domestically, so say if China or the US were to decide to dump their holdings in Japanese Government Bonds, it would not lead to a collapse in the Japanese economy. In addition overnight cash interest rates are around 0.1% per annum, which is the lowest rate amongst all the major central banks in the world. The below link attests this:

http://www.global-rates.com/interest-rates/central-banks/central-banks.aspx

All good? Not quite.

Let us start with the savings rate: During the hey-days of the late 80s and early 90s, Japan had a savings rate of around 15 to 25%. Today it is under 3%. The two main causes are: a) declining asset prices (i.e. deflation), and b) an ageing population. We have effectively touched on the asset price collapse over the last two decades with the real estate and stock market bubbles, so we will focus on the impact of the aging population. More than 23% of Japan’s population are above the retirement age of 65 (compare that to 11.6% in 1989), and as the chart clearly shows below, there is a direct correlation between the decline in the working age population and the rate of economic growth (makes sense - less able workers, less production…). 

Apart from having a lower proportion of the population in the workforce, pension funds and insurance companies have had to start selling their Japanese Government Bond (JGB) holdings in order to payout the retirement benefits that are owed. This leads to the servicability of debt becoming more difficult (seriously who wants to put their money into savings that would only get you next to nothing in interest?). To ascertain the degree of desperation of those governing the finances of the nation, one “remedial” solution proposed by the new (but don’t know for how long) finance minster Aso Taro was to ask the elderly to “hurry up and die” http://www.guardian.co.uk/world/2013/jan/22/elderly-hurry-up-die-japanese  in order to reduce the cost of social welfare (18% of national income currently, 27% by 2025) –  what is the phone number to The Hague, please?  

Anyway moving from that slightly morbid blot now is a good time to touch on interest rates, I mean what interest rates? For about 17 or so years, the overnight cash rate in Japan has been set by the Bank of Japan (BoJ) to under 1% per annum in order to help revitalise the economy (see chart below).This has not quite worked out (check out chart previously).

Now the latest Prime Minster Shinzo Abe has promised to combat the deflation of asset prices in Japan by proposing a 2% inflation target. This would imply making assets, including Japanese Government Bonds more attractive to purchase. Now we have touched on the fact that the savings rate in Japan is now under 3%, domestic purchases would have a band-aid effect, so it would be wise to increase sales to foreign investors, but again with a declining Yen and next to nothing interest rates, what can make one more interested in purchasing bonds? One solution is to increase the yield of return on Japanese Governement Bonds, but this would imply raising interest rates. 

There is a fundamental problem to this however: Even at these low levels of interest, 25-30% of Japanese tax revenue is spent on servicing only the interest payments for the bonds. It has been calculated that if interest rates go up to as much as 2.5%-3.5% per annum, the tax revenue generated would not be enough to cover the interest payments. At the moment the Japanese tax rate is 5%, with plans to increase it to 10% by 2015, but even if all Japanese held assets were put to service the debt issued by the Japanese government and taxes were raised to 100%, it has been forecasted that it would be enough to only service the debt for another 12 years. Things look terminal at best.  

The last major point I want to look at is Japan’s trade surplus. Before the 2011 Earthquake/Fukushima disaster, Japan had maintained a positive trade balance due to high volume of exports, as well as low dependency to meet the energy requirements of the nation due to the development of nuclear reac tors.

Post Fukushima, however, nuclear reactors were shut down leading to significnat increases in energy imports, making Japan a net importer as oppose to a net exporter (see chart below). 

Combine that with a weaker yen to boost exports, increased stimulus to revitalize infrastructure (20 trillion yen promised by Shinzo Abe), falling exports to China (it’s largest export partner, and territorial disputes brewing again) and a downbeat global economy, it Is expected that the deficit will get much wider.  

So what is it that needs to be solved in Japan? Increase economic growth and increase the value of asset prices. What can be done? Government go beserk, print more money/issue more JGB at super-low interest rates and devalue Yen to increase exports. That has been the current policy to date, and clearly has not worked.. So what about stopping the money printing, raise interest rates and increase the value of the Yen? – As we have seen it is a quick step to sovereign default. How about re-starting the nuclear reactors? – Not sure if one can stomach 3-eyed fish. How about addressing xenephobic immigration policies or increasing incentives to have larger families to increase the proportion of the working age population? – Wishful thinking, but may be too late to implement as it is.   

If we put the implications in a global context, consider that Japan is the third largest economy in the world and holds $4 trillion US dollars in foreign assets. Now mix with that the crisis in the Eurozone and Helicopter Ben Bernanke continuing to go wild in the US with the never-ending “quantitative-easing” money printing, we would most likely see a crisis in the Global Financial Markets unprecedented in anyones’ time sooner rather than later.   

Ah0707 - “Guns and Food (Gold and Silver too)”

Australian Housing Bubble: You MUST watch this video

There were just a handful of people who predicted the Global Financial Crisis, and this blog follows them all, but there was one man who not only predicted it, but managed to scientifically get nearly every detail of it correct. This man was Steve Keen, Professor in Economics in Western Sydney, Australia. Two years ago he gave a chilling presentation at the mortgage finance association of Australia about the severity of the Australian housing bubble and how the governmenst FHOS (first home owners grants) has every time fooled the innocent minded people of Australia into living in debt for the rest of their lives in over-prices assets.

Over the next week I'm going to by doing some analysis of the key charts you need to know, because this could save your financial future. We are currently at the tipping point of our bubble and have left the illusionary phase and have now entered the denial phase. If you can sell your home now, you will get the highest price for it in real terms then you may ever be able to in your lifetimes. Do yourself a favour and watch THIS VIDEO. I'll be putting up some charts that show in simple terms what's going on in the next few posts.

http://www.debtdeflation.com/blogs/2011/03/20/mortgage-finance-association-of-australia-talk/

Bernanke & Krugman kiss and make up! Also our blog is now on Twitter! @nickj4848

I just love photoshopping these guys and despite their petty bickering in the New York Times, I just can't help but feel that after they finish poisoning the economy with their ideas and destroy us all, that hope is at the end of the tunnel. Let this picture be your inspirational moment of the day! Krugman and Bernanke in love at last!

Feel free to reach me on twitter @nickj4848 or email me nickj4848@gmail.com with your suggestions of what to photoshop next!

Japan's Imminent Economic Seppuku Will Unleash a Financial Tsunami upon the World

In the coming days our new contributor will be writing about the crisis in Japan. As a precursor to this you should do yourself a favour and check out this recent talk given by Kyle Bass. His company is Hayman Capital Management. He successfully predicted and benefitted from the subprime mortgage crisis by purchasing credit default swaps on subprime securities issued by various investment banks (similar to shorting the bonds). Bass has since continued to attract media attention for his prediction of the European sovereign-debt crisis and his expectations regarding Japan's economic future.

Kyle's blog can be found HERE. The blog has most of the transcript from the speech which is similar to one I've heard him give before, but the different audience questions give new insights.
If I had a spare $5 million to invest i'd definitely give it to this guy ($5 million is his minimum client).

Basically it boils down to this, Japan is in 1 Quadrillion dollars in debt and is barely able to finance the interest on this debt. Japan has only downsides at the moment because it has a shrinking & ageing population, they import way more then they export, and China is making life difficult for them by boycotting trade. Prime Minister Shinzo Abe and their central bank have decided to print money to stamp out deflation in the hopes of creating growth.

The massive risk (which is not so much a risk as a fact) is that if they do in fact achieve growth and subsequently have to raise interest rates (even fractionally), they will be unable to fund paying the interest on their massive debts. In this situation investors will flee and Japan will have a sovereign debt crisis. Japan is the 3rd largest economy in the world and this will unleash an economic tsunami on the rest of the world, creating even greater stress on a fragile Euro and US economies.

Oh and by the way, Japan has had 10 finance ministers in the past 5 years, a rate of change that hasn't been seen since the fallout from WW2. To give you an idea about how bad the situation is look at this article headline from the end of last year  "Japan's Finance Minister Commits Suicide on SuicidePrevention Day"

Or what about this headline about their Brand New Finance Minister "Japan's finance minister tells elderly they should 'hurry up and die' to help reduce country's rising welfare bill"

Anyhow, I thoroughly recommend you watch (or even just listen to) the video and lookup Kyle Bass on Youtube for some great information. Below is a different video of Kyle Bass on youtube it is similar to the one above. You don't get 100,000 hits on youtube for a 1 hour video on economics unless its getting passed around for a reason!

I tried to embed the video but blogspot wouldn't allow me to post it so just click on the link below

http://www.youtube.com/watch?v=JUc8-GUC1hY

Bankings Biggest Bitch-Slave and The Man Who Shame-Slapped Them All

In case you forgot about the TARP controversy, Neil Barofsky was the Special United States Treasury Department Inspector General in charge of overseeing the Troubled Assets Relief Program (TARP) from a period of late 2008 until his formal resignation at the end of March 2011. He is an outspoken critic of the TARP programme and argued for controls on how banks spent their bailout money, but was ridiculed by his banker bitch-slave peers who felt the banks should not be held to account on how they spend the bailout money. Barofsky is seen below getting ready to shame-slap Geithner.

He has been described as “one of the most impressive and courageous political officials in Washington” who is willing to “stand up to some of the most powerful people and institutions in Washington or on Wall Street.” Treasury Secretary Geithner allegedly went on a expletive filled rant to Barofsky in private and nearly throttled him. 

In the video below Barofsky discusses how a bigger financial meltdown is likely with this corrupt system. This great interview discusses the controversy over banks being too big to fail and too big to jail, and how governments refusing to appropriately penalise banks for fraud and malpractice will only lead to greater risk taking and even more fraudulent behaviour by the banks who basically have unspoken immunity to law.

Casey Research & New Contributor

I'm performing more research on the Australian housing bubble, but in the meantime here is a great article done by Casey Research on the fundamentals leading to a coming Bond Market Crash - this further echos my previous posts on the topic. 
We are going to see the work of a new contributor to the blog in a week or so, he is a financial analyst with one of the biggest banks, has several degrees and is extremely intelligent. He is preparing an article on the looming Japanese Crisis. So I am very excited to read his article and share it with you all. If you want to contribute on a topic you feel is important then email me on nickj4848@gmail.com

http://www.caseyresearch.com/articles/coming-crash-bond-market

Also be sure to watch Jim Rickards on the Keiser Report early this week. He is writing his second book on the currency wars, and I am very excited to hear more about it. Ill provide a link when its up.