The idea is that Japan has an unserviceable,
unmanageable amount of debt. Their debt-to-GDP is twice as high as say
the US is and anybody else. And there’s no way this is ever gonna’ be
paid back. And I, and I’m sure others, have wondered
how will this end? And what we are seeing with the world turning
to QE and getting standing ovation for doing so, now the BOJ has 42% of the outstanding
debt. And at the rate their buying it, it wouldn’t
be difficult to see how they could get to 50%, or 60%, or some other big number. So, the question is, what would happen if
they said to the minister of finance, look, we don’t need to give this money back. We will exchange our JGBs for a 200-year one
basis point bond or a 200-year– 0%. Something that they could call an asset. Some people said this can’t possibly work,
because then BOJ’s assets would decline. Well, first of all, they have a printing press,
remember? It doesn’t matter. Everyone worries about some fixed asset that’s
forgotten. They all have printing presses, and they use
them, and no one seems to care. In a different environment, they might care,
but that’s not the one we’re in. So, let’s say they get an asset back that
they could say is worth 100 cents on the dollar. So, boom! Now, all of a sudden, let’s just take it to
its logical conclusion. They buy 100% or 70% or 80%. How to they get to 100%? Because at some point–
They just step on the gas. But they just say, right, we’ve got to 70%. We’ll take all the rest. Well, we could come up with all kinds of fanciful
stories. But let’s just say that we have
a financial asset in the world, and we can start QE again here. And it doesn’t really matter
how they get to that point. The point becomes if they get there, how does
it play out should they try to do that? And it’s a really fascinating question, and
I would love to have this discussion with every smart person I could find, because the
way I see it when I walk myself through the steps is, OK, let’s say they say, OK, we’re
going to tear this paper up, and now the BOJ has got a new 200-year, one basis point asset. The debt service in Japan is now totally manageable. So, there’s no fear of a debt-inspired deflationary
collapse. The first reaction, people would say, well,
the currency would be worthless. And I say, but why would it be worthless? Because first of all, these currencies are
all worthless.