John Rubino is a former Wall Street financial analyst and author or co-author of five books, including The Money Bubble: What to Do Before It Pops and Clean Money: Picking Winners in the Green-Tech Boom. He founded the popular financial website DollarCollapse.com in 2004, sold it in 2022, and now publishes John Rubino’s Substack newsletter.
Japan has been a big topic in this newsletter because it illustrates the no-win situation in which wildly overindebted countries eventually find themselves. Here are two articles that illustrate the point:
Confronted with both a plunging yen and rising interest rates, Japan was recently forced to address one of those potential crises. It chose to protect the yen by raising short-term interest rates and using the dollars in its foreign exchange reserve to buy yen. This arrested the yen’s decline:
But remember, Japan is in a box where fixing one crisis exacerbates one or more others. In this case, a resurgent yen makes Japanese exports more expensive, threatening to tip the economy into recession. Japanese stocks, in response, are now plunging:
A rising yen also threatens the “carry trade” in which businesses borrow yen at low interest rates and use the proceeds to fund AI data centers and leveraged Treasury bond speculation and all kinds of other cutting edge things. Eliminate this source of cheap funding and related activity grinds to a halt, causing trouble for everyone. Consider:
(CNBC) – The rising yen has fueled speculation about whether this could mark the end of the popular so-called “carry trade” — wherein an investor borrows in a currency with low interest rates, such as the yen, and reinvests the proceeds in a currency with a higher rate of return.
“The now evident vulnerability of US equity prices to a rise in the Yen exchange rate warns of the consequences for US asset prices and developed-world asset prices in general from monetary policy changes in the east,” economic historian Russell Napier said in the Tuesday report.
He cited the recent rally in the Japanese currency as an example where selling pressure from investors seeking to repay their yen debt had pushed prices of U.S. equities down, while yields on U.S. government debt continued to decline.
“That the US equity market should react so negatively to this rally in the Yen is the shape of things to come, and an indicator to investors of how inter-related US equity valuations are with the global monetary system,” Napier said.
‘An implosion of the carry trade’
U.S. stocks kicked off the month sharply lower, as fresh data prompted fears of a worsening economic outlook. The weak data led investors to worry that the Federal Reserve may be behind the curve in cutting interest rates to fend off a recession.
This Is Why Stocks Are Tanking Everywhere
Cheap debt (partially supplied via the yen carry trade ) has made the Everything Bubble possible. Close down this source of funds and everything from office buildings to US banks to AI stocks will be hit hard. And — since fixing this problem will simply blow up other parts of the leveraged speculating universe — there is no solution, only a choice of crises.
Welcome to the end of the fiat currency experiment. Buy gold.
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