Note to BoJ: Try Something Different or Look Perpetually Foolish
This story comes from ZeroHedge who reports BoJ Offers To Buy Unlimited Debt, Boosts POMO In Panic Response To Surging Rates.
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?
- That Japan cannot take interest rates higher that 0.11%?
- That 1 basis point on 10-year bonds matters?
- That Japan cannot destroy it's currency after years of trying?
- 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
- Negative Sales Taxes
- One Percent Tax, Per Month, on Government Bonds
- National Tax Free Lottery
Please click on the above link for further details.
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.
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