from PNG's site: http://www2.gol.com/users/png/

A Special Financial Report The other year 2000 problem

The world's largest financial institution is facing a ticking timebomb.

The largest financial institution in the world is the Japanese Postal Savings System. It was created in the mid 1960's as a convenient and safe system for "ordinary people" to invest in time deposits. In return, the government benefited from the steady cash deposits.

The original concept was that small-lot depositors would create a small financial institution. Japan was not a wealthy nation then and Japanese banks and government ofiicials continually drummed the concept of save, save, save to the Japanese consumer. And save they did. Today, the outstanding balance of Postal Savings is about 250 trillion yen (~U.S.$2.2 trillion). Those are trillions not billions.

You rarely see trillion dollar numbers thrown around because those kinds of numbers are reserved for people like Alan Greenspan when he talks about...whatever it is he talks about. I think he talks about gross domestic products. So, most people associate the phrase "trillions of dollars" with Alan Greenspan which means most of you are asleep right now.

The sheer size of Postal Savings makes it capable of affecting the entire global financial picture should any drastic changes occur. The basic financial intruments of Postal Savings are 10-year fixed-rate deposits. If you think back ten years ago, Japan was at the height of it's financial power and the inflated bubble economy.

In 1990, the Postal Savings was offering compounded annual yields of over 8.5% on ten-year deposits. Japanese "ordinary people" poured about $1trillion into the system. They subsequently withdrew about 40%, but the remaining balance with interest will come to maturity in 2000.

Starting in 2000, people will be lining up at post offices to redeem their 10-year bonds. Since rolling over into new fixed-rate Postal Savings deposits will yield only about 0.2% interest, I expect most will want to put their money elsewhere. How much are we talking about here? Well, we're talking about an Alan Greenspan amount of money...about $1 trillion dollars.

I know you're sleepy, but stay with me here. $1 trillion is about the same as the GDP's of Canada and Mexico combined.

So can you imagine all these Japanese housewives lined up at post offices with their savings books, asking for over 20% of Japan's GDP...in cash?

"Okane wo misete kudasai" (Show me the money)

Now, the question is...where is the money? Obviously the money is "invested." The problem is that much of it is "invested" in what are called "special corporations." Special corporations are businesses set up by the government bureaucrats to be run by former and retired bureaucrats. It is estimated that these special corporations have lost over $500 billion by allowing retired bureaucrats to pretend to be businessmen.

The Japanese government plan is to "hope" only half of the people want their money. Then perhaps they can sell $500 billion of more bonds to pay for the redemption of the first bonds. Bond prices could skyrocket for such a scheme.

If that isn't enough, consider that next year companies are required to report the status of employee retirement funds. Currently, Japanese companies are not required to disclose this information. Many very large companies do not have the abiity to meet their pension obligations to Japanese baby boomers who devoted their lives to companies in exchange for their retirement money.

The disclosure of corporate pension shortfalls could provoke 75% or more of Postal Savings investors to cash in their time deposits at maturity. There just isn't enough money to cover that scenario.

I have never been able to visualize a scenario that would prompt Japan to sell it's massive holdings of U.S. Treasury Bills. I'm starting to see a scenario now.

-- a (a@a.a), March 23, 1999

Answers

Link.

-- Steve Hartsman (hartsman@ticon.net), March 23, 1999.

Thanks, a, for posting that. I print out all of PNG's info. Now, I am wondering... If they_did_sell their holdings of US Treasury bills, who would buy them... What would the major effect be on the U.S., as well as the holders of US Treasury Bills??

-- Suzanne L (SuzanneL@yearlong.lurker), March 23, 1999.

I meant U.S holders of the Treasury Bills...

-- Suzanne L (SuzanneL@yearlong.lurker), March 23, 1999.

I recently asked PNG "What happens when when Japan [sells it's massive holdings of U.S. Treasury Bills and] calls in its loans?" His reply:

"Companies have to pay up or find someone else to lend them money to pay up. All unsecured commercial loans are always subject to call in at any time. No reason is required by the lender.

The credit crunch will simply dry up the lifeblood of the economy - cash for companies to operate and expand. Hint: Companies that are overpriced and losing money must have credit to stay in business. They will be the first to get cut off."

-- a (a@a.a), March 23, 1999.

a:

After reading this information, I'm more certain than ever that Japan is going to tank and bring down Wall Street. The more I learn the stronger my pessimism grows.

I'll go to bed now, and when I awaken, all will be well. Wait, there's that war starting in Yugoslavia. Nevermind.

-- dinosaur (dinosaur@williams-net.com), March 23, 1999.

If Japan is forced to sell Treasuries, all other things equal, supply effects would cause prices of existing bonds to fall. The coupon or interest rate on the existing Treasuries would stay the same, of course, therefore the current yield of the bonds would rise, because you could by the same coupon rate for less principal payment.

These rising interest rates would make Treasuries compare more favorably to alternative investments, so investors would put more assets in Treasuries and less in other investments. The stock markets would be adversely affected. All new borrowers, both private and public, would have to pay higher coupon rates in order to attract buyers.

Corporate profits and government budgets would suffer because of higher interest expenses. Profit erosion could cause further pressure on stock markets.

This essay would probably get you a good solid "F" in freshman econ, but that's my take.

-- Puddintame (dit@dot.com), March 23, 1999.

Very endearing this hero worship thing you got goin on with PNG, a_a

-- Amused (----@laughing.com), March 24, 1999.

yes here's another post from a PNG sycophant

another brilliant analysis, why don't we get this stuff in our media (no don't answer that I already know)

there are so many huge financial timebombs in Japan, once one goes off it'll be too late

-- hero worshipper II (rdale@coynet.com), March 24, 1999.

Gee..I guess you guys are right...all that stuff on PNG's site is a bunch of bologna...silly me!

Thanks for setting me straight. I must not have a big brain like you.

-- a (a@a.a), March 24, 1999.