- Japan Just Lit the Fuse on a $9 Trillion Debt Bomb
by Phoenix Capital Research, www.zerohedge.com
On Friday the Bank of Japan implemented Negative Interest Rate Policy, or NIRP. It is the second Central Bank to do so. The European Central Bank or ECB first went to NIRP in June 2014. Thus, between Japan and Europe, over 20% of the world’s GDP is being managed by a Central Bank with NIRP. More importantly, TWO major currencies in the world are now at NIRP while the US Dollar is at 0.5%. Why does this matter?
Because hundreds of billions of Dollars in capital will be fleeing Japan to come to the US. The US Dollar has been in a bull market since mid-2014. It is not coincidence that it started when the Euro first went to NIRP: the minute the ECB implemented NIRP money began fleeing the Euro and moving into the US Dollar. (chart top of post)
To put this into perspective, this move was larger in scope than the “flight to safety” that occurred in 2008 when everyone thought the world was ending. The reason this is problematic?
There are over $9 trillion in BORROWED US Dollars sloshing around the financial system.
And much of it is parked in assets that are denominated in emerging market currencies (the very currencies that have imploded as the US Dollar rallied). This is the US Dollar carry trade… and it is larger in scope that the economies of Germany and Japan… combined. ALL of this DEBT is at risk of blowing up when the US Dollar began to rally. And now that both Europe AND Japan are implementing NIRP, the US Dollar bull market is only going to get worse.
The US Dollar has broken out of the single BIGGEST falling wedge pattern in history. You are looking at a 40 year chart pattern that has been broken.