Wednesday, March 16, 2011

How Much Treasury Debt Does Japan Own?

Japan Owns 20% of the US Treasury Debt or $885 Billion
Why is no one inf the financial press talking about Japan being the 2nd largest holder of Treasury debt as a problem?   Is this the stock Black Swan the market did not see coming?  Will the US Government be able to issue enough treasury debt at current yields and continue the ponzi scheme it has been running for the last few years.  The next few treasury auctions are going to be very interesting to see if the US government can fill the demand and at what price.  If one of the largest investors Japan needs to pull back its contribution of over $885 billion?  Isn't a red flag that one of the largest treasury bond holders funds Pimco has sold their entire portfolio?  Will we see US treasury bond yields spike to 7-12% like Greece and Ireland?    They are currently between .05 and 4.5% depending on the duration.

I happen to be one of the few people that believe the market has been artificially propped up by the Fed buying bonds in the open market.  This cash gets invested back in the markets in order to prop up equity prices.  I am all for capitalism and organic growth but the current run up in bond and equity prices have not been commensurate with the level of growth and unemployment.

Why am I worried about this as an early stage investor? Well, because I don't believe that our growth has been created organically by capital formation and venture capital.  Our industry is still shrinking drastically.  The day that the VC industry starts to expand in the US I will be the first person to claim we are in a real bull market for an extended period of time.  However, for the time being I am bearish until the government can get out of way with regards to financial regulation and the government restructures their balance sheets to fit the private sector drop in wealth.  

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