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Japan could dump treasuries to pay for rebuilding costs from the tsunami

oil&gas

Well-known member
Apr 16, 2002
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Ghawar
If rebuilding Christchurch will cost more than 10 billion how much the cost
of reconstruction for Japan in the aftermath of the Tsunami is going to be like?
It could easily amount to trillions of USD.

I wish Japan well and won't want to profit from its misery. But perhaps it is
time to increase my holding of gold bullions for extra protection against
further deterioration of the USD.

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http://www.examiner.com/finance-exa...-to-pay-for-rebuilding-costs-from-the-tsunami

Kenneth Schortgen Jr
March 11th, 2011


Japan could be the next economy to dump treasuries in light of the cost
required to rebuild after the tsunami that tore through the Northern part
of their country today. As bond insurer Pimco lead the way earlier this
week in selling off all their bond holdings, Japan will need to find an
income source to help rebuild its infrastructure, and get its economic
machine going again.

According to the Treasury Department, Japan is the second biggest holder
of government debt (actually third largest since the Treasury doesn't
record the debt instruments held by our Federal Reserve), and they have
nearly $900 Billion in dollar reserves. This gives Japan a large source
of funds to begin rebuilding, but it also comes at a price.

Depending upon how many Treasuries Japan has in reserve should they choose
to dump into the market, it could lead not only to bond prices dropping,
but it also may trigger other nations such as China to immediately
jump in and sell their holdings, causing a crash in the bond markets,
and bringing serious damage to our economy.

In an article this morning from Reuters, bond prices are already dropping
in the fear that Japan may sell off its holdings to pay for rebuilding
the country.

The benchmark 10-year note US10YT=RR was down 5/32 in price to yield
3.38 percent, up from 3.36 percent on Thursday. The yield is down
from a high of 3.60 percent on March 4.

Analysts at Credit Suisse also said on Friday that they have closed
their long 10-year note recommendation after reaching their target
yield level.

Some investors, meanwhile, feared that Japan's earthquake may
pressure bonds if insurers need to sell high-quality holdings to
pay for claims.

Yields on 10-year Treasuries rose by around 20 basis points in the
days following the earthquake in Japan's Kobe region in 1995.

"The last time there was a large earthquake, Japanese investors
sold things to repatriate and thus the market came off a bit," David
Ader, head of government bond strategy at CRT Capital in Stamford,
Connecticut, said in a note.


The global market today is so intertwined that a single incident in one
country can trigger economic turmoil in many others. We have seen this
over the past two weeks in the Middle East over oil, and now with the
earthquake and tsunami in Japan, we could see the bond markets go into
chaos here in the US.

Japan has a track record of dumping their treasuries after large disasters
to protect and rebuild their country, and with the tsunami that hit the
mainland today, the likelihood of this happening is very good, and could
bring strong influence to the economy of the US as well.
 

Mencken

Well-known member
Oct 24, 2005
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I think "trillions" is a bit high...likely number is less than the Kobe earthquake, according to reports yesterday. The Kobe quake is the largest natural disaster by cost so far.
 

oil&gas

Well-known member
Apr 16, 2002
12,224
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Ghawar
I think "trillions" is a bit high...likely number is less than the Kobe earthquake, according to reports yesterday. The Kobe quake is the largest natural disaster by cost so far.

I had in mind aides to be provided to the people affected as well as the cost of
rebuilding the infrastructures damaged. So far aside from a few disabled nuclear
power stations the destruction seems mainly confined to personal properties. If a
major radiation leak breaks out the cost of clean up could be enormous. I think
even in the best case scenario Japan will have to sell a sizeable portion of its
USD reserves.
 

danmand

Well-known member
Nov 28, 2003
46,353
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Berkshire will be taking quite a hit.
 

oil&gas

Well-known member
Apr 16, 2002
12,224
1,621
113
Ghawar
I could not provide a link at this time. I was just informed by a
source based on a report from a Hong Kong newspaper that
an increase of debt by more than 5% could prompt Japan
to start taping its foreign exchange reserves (in lieu of raising
its own debt),
 
Ashley Madison
Toronto Escorts