By Peter Schiff

As the Japanese government continues holding short-term interest rates near zero while printing yen like it is going out of style, getting out of the yen has now replaced pachinko as the national pastime for rank and file Japanese.  With housewives and cab drivers debating the best techniques to exchange their yen savings for higher yielding non-yen assets, the Japanese monetary authorities are facing the prospect of the complete destruction of their own currency, subjecting their citizens to the horrors of hyperinflation.
 
For years, the storied efficiency of the Japanese economy has kept its citizens from understanding just how much purchasing power they were losing to inflation.  As the extremely productive Japanese economy worked to lower consumer prices, the inflationary monetary policy of the BOJ reversed those declines, robbing Japanese consumers of the benefits of falling prices. This loss represents a massive subsidy to American consumers.
 
However, inflation is about to get so out of control in Japan that prices will soon rise despite the natural forces that would otherwise have lowered them. As rising prices become impossible to ignore, perhaps the Japanese will borrow a page from the U.S. playbook and recalculate their CPI to hide the grim reality. However, with the carry trade kicking into high gear, such propaganda efforts will likely not succeed.
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By Peter Schiff

Now that yields on ten-year Treasuries have cracked through 5%, on their way to infinity and beyond, many on Wall Street are wondering how high rates must go before bonds begin to draw investors away from stocks. 
 
Most equity analysts are sounding the all-clear by proclaiming that 5.25% – 5.5% ten-year yields do not offer a significant threat to stocks. Although I agree that this is true, I don’t share their confidence that 5.5% represents any kind of a ceiling for rates.  The important issue is not the point at which bonds become attractive relative to stocks. Rather it is the point at which they regain their attraction to foreign central banks, whose massive purchases of Treasuries have lost steam amidst rising global rates and lost confidence in the U.S. Dollar, and to private foreign savers, who have already abandoned treasuries for better performing assets.
 
The truth is that the fundamental lack of appeal of Treasuries on the global market means that rates will rise considerably from here, which is very bearish for stocks indeed. Given the real rate of inflation (not the phony rate implied by the CPI) and the potential for a protracted decline in the value of the dollar, rates must rise significantly in order to convince overseas buyers to stay in the game.
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By Peter Schiff

At a commercial real estate conference earlier this week, Alan Greenspan downplayed concerns that the Chinese might sell their significant holdings of U.S. Treasuries. The former Fed chairman based his opinion not on the inherent investment merits of Treasuries, but rather on their lack of them. His confidence stems simply from his belief that the Chinese have no one to whom they can sell. Furthermore, Greenspan sees this as a problem for the Chinese and not the U.S. 
 
Although the performance of U.S. Treasuries has long been regarded as poor vis-à-vis other classes of sovereign debt, its overriding virtue has always been its supposed unrivalled “liquidity.” As the most heavily traded asset in the world, it is argued that massive investors like the Chinese have few other markets in which they can operate.  However, if there are no significant buyers to whom the Chinese can sell, then there is no real liquidity at all. If there is no performance or liquidity, why would they continue buying?
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