Profligate government spending has institutionalized multitrillion-dollar annual deficits, which have driven up interest rates and left Treasury markets teetering on the edge. Now Japan is on the verge of a $400 billion fire sale of U.S. debt. This could break the back of the Treasury market and devastate Americans’ finances.
The source of Japan’s sudden need for liquidity is the state-owned Government Pension Investment Fund, which holds the social security reserves of nearly every Japanese worker. Because the government wants to prop up the plunging yen, it intends to sell the American assets and buy Japanese ones.
The amounts here aren’t trivial: The fund is more than $1.5 trillion, of which $400 billion is U.S. Treasurys. This conversion from dollar-denominated assets to yen-denominated ones means dumping a quantity of Treasurys on the market equal to about 20% of the federal government’s net annual borrowing.
A 20%…
