Saturday, January 19, 2013

Zero Hedge: "Detonating the Japanese Debt Time Bomb" With Kyle Bass

From what I have seen so far, the Japanese people are clueless about what's been going on in their own country economically for the past 20 years. Because they don't understand how economy and finance work, so they cling on to the economic cliche - neo-Keynesian this and that, Chicago School this and that, and highly respect Nobel Prize-winning economists like Paul Krugman whenever he utters anything.

They truly believe the official line that deflation is bad and inflation is good, completely forgetting what their government feeds you is a bunch of garbage (figuratively and literally), as the Fukushima I Nuclear Power Plant accident has abundantly shown them (I hope, but hope has become a dirty word).

They are clueless as to how Bank of Japan prints money, and why printing paper money is not creation of wealth. I suppose that is to be expected from a country where they still teach Marxian economics in universities.

They will never know what hits them when it hits them, which Kyle Bass seems to think will happen within 2 years. Just like the Fukushima nuke accident, it will be "beyond expectation". And just like the Fukushima nuke accident, it will be because of the imperial US's fault for causing it and/or not helping Japan (well, there's some truth to that, I guess, at least the former).

From Zero Hedge's Tyler Durden (1/18/2013; emphasis is original):

"Detonating The Japanese Debt Time Bomb" With Kyle Bass

The hyper-correlation of Japanese stocks and the JPY have led many to believe that Abe's miracle promise will be just the ticket to bring the nation's two-decade slump to an end - a 2% inflation target is all you need. However, in a brief CNBC interview, Kyle Bass explains that not only are 99.9% of people wrong about the crisis (explaining the critical aspect of the abrupt turn of twenty years of the 'procylicality of thought' - that deflation is the norm), but Abe's actions have actually brought forward the date of the "detonation of Japan's Debt Time Bomb.

It is the Japanese institutions that own JGBs and they own them at meager rates of interest simply because of the ingrained belief in deflation; when the government begins to target 2% inflation, the swing in forward expectations (he notes to monitor inflation swap breakevens) will be the trigger for Japan's implosion. Bass warns that "Japanese debt is around 24x central government tax revenue and when you sail into the zone of insolvency, nothing you can do will help," though he realizes that calling the end of the 70-year debt super-cyle to a specific date is naive, he does expect the 'bomb' to explode within 18 month to two years.

All of the components for this [bomb] to go off 'all of a sudden' are in place. The clock has started on the qualitative shift in participants' minds that the situation is untenable as the realization that Japan spends 25% of revenue on interest now - and with higher rates (via this supposed inflation) the entire situation becomes farcical as every 1% rise in their cost of capital (or rates) costs them another 25% of revenue!.

On JPY devaluation - The signs are already there that elites are exiting the JPY - with recent M&A transactions - he warns. 20% of exports go to China; this could be halved given the tensions, and a JPY devaluation is not going to restore the competitiveness of that secular decline.

On Japanese stocks - The people buying Japanese stocks, are picking up dimes in front of a bulldozer.
Bass goes on to discuss the US Housing stabilization, European stress, and China's economic opacity.

I think I mentioned it here before, but I still very clearly remember reading the Japanese message boards right after the March 11, 2011 triple disaster. As the reactor buildings exploded one after another, the clueless Japanese were chattering away, saying "We must go out and spend money and have fun! If we refrain from spending money because of the earthquake and tsunami, it will be bad for the economy because it will create more deflation! That won't help the disaster victims, will it?"

They don't even know 25% of the national budget is used to pay interest on the debt. They don't know that rising yields on bonds means bond price is decreasing.



  1. I've been writing about this on my blog. Please tell me what you think, ex-skf.

    I used to like what Paul Krugman wrote, but recently I can't comprehend why he is praising Abe's approach.

  2. The US is no better after, 9/11 Bush told the public get out there and spend "or the terrorist win" and everybody got out their credit cards and went to work on their future financial ruin.

  3. OK. I like Kyle Bass. Lets say he is right about the Debt Bomb Exploding in 18-24months time. What does this exactly entail? How will it affect ordinary people? What should we do to mitigate the worst effects? How do we play this? How long will it all last? What will the authorities do?
    Are we going to starve to death? What should we do to protect our families?

  4. Thank you for this update. I have heard so many times here in Japan. "Well, it is "our" debt so we can print as much as a we want and since Japanese society is not like the others the impact/repercussions won't be the same. Any comments Ultraman?

  5. There is an economic Tsunami coming down the line for Japan and as usual the Japanese are clueless and ignorant... just like they are regarding Fukushima.. i guess when you have a culture that is so elitist and institutionally racist they let their pride get in the way and talk about how their debt is "special" just like their soil and their snow well they will have a "special" economic collapse soon..

  6. 6:35, I have lived in Japan 20 years and have not found the culture to be 'so elitist and institutionally racist'. Homogeneity does not = racism. In fact the USA has far more racists and probably far more elitists.
    Sure, Japan isn't perfect (where is?) and many are kept clueless and ignorant by a powerful media machine and other ideological, self re-inforcing bodies. But so is the UK for that matter, for example...equally heading for a special economic collapse...and Europe and the USA. In fact it's a global (fiat) problem and Japan may just be hitting the tape first. You'll all follow, and we'll see which country is best for getting along with each other in an orderly fashion.
    Have a nice day!

  7. From my personal experience, Japanese, and East Asians are more racists than others.

    As to many kept clueless, after so many years it's their responsibility to inform themselves, instead of claiming they are victims of powerful media or political machines. Particularly after a nuclear accident like that.

    Anon at 6:10AM, just smile to your Japanese colleagues and wish them luck.

  8. Mmm, as a Marxist who grew up in a socialist country with open borders I have a hard time believing that paper money has any value at all, especially when it's not covered by production.

    In the course of time, I have accepted that consciousness very often shapes being rather than the other way around -- if people believe that paper money is real wealth and that inflation is good, they will reshape their reality to that effect, at least for a while. But please do not chalk it up to Marxism -- the belief that money exists without any actual basis behind it, and that inflation is good is purely neo-liberal.

    Marxism has nothing to do with that, they are much more likely to be guilty of the sin of worshiping factories and production to the detriment of the environment (see Bengali "communists" and their love for "development". But then again, that's a vice which they happily share with capitalists.

  9. Back to BASSics. Not racism or Marxism or elitism.
    What can the average person in Japan do to protect themselves against the 'debt bomb'? Are we talking hyperinflation or no public salaries, pensions etc for nurses and teachers?


  10. Anon at 4:04PM, why don't you study, instead of asking others for help?

  11. What do you think I am trying to do? Asking for help is studying. Do a search on impact of a debt bomb. There is plenty of warnings about it going off but almost no information on what it actually entails.
    Thanks for your advice though! Real nice.

  12. arevamirpal::laprimavera said...

    From my personal experience, Japanese, and East Asians are more racists than others.

    Been to Australia?

    White people (in Japan) don't like feeling in a minority, getting pointed at and giggles. That's not the kind of racism I enjoy, but it is mere ignorance-that's all. There is little of the maliciousness/beatings/in your face racism of some other places I can think of.

  13. Anon 8:14PM, if all you experience is ignorant giggles, consider yourself lucky and move on.

  14. Anon 8:35, Anything to say about the debt bomb?

  15. Yes. Let it explode.

  16. And it'll have no effect on your country? Surely you dont expect Japan to explode and have no greater consequences. Or are you simply a troll with nothing to say?

  17. China doesn't seem to think either that Japan's problem would affect their country, and says it is quite willing to dump Japanese bonds it holds.

    And please refrain from trashing others with words like troll and shill.

  18. China may dare to dump bonds. The rest of the (insolvent) banking countries wouldn't find it very funny. And, besides, China is busy being surrounded by US and her allies, moving the center of focus to S.E. Asia from the M.E. Every country is too weak to stand up to China alone, and China, whilst demanding imperiously islands and rocks, oceans and resources of her neighbors, is forcing them to ally themselves with Japan.(Myanmar, ASEAN, etc).
    So even if they dumped the bonds they could expect to be defaulted on or expect punitive response from the international community. Just what China hates. I think it is quite naive to suggest there would be no fallout for China when/if/how Japan hits the ropes.
    Perfect ingredients for a very big war when you think about it. I dont think the USD is just going to hand over the keys of the reserve currency to the Yuan...without a good fight. Arming Japan at this stage (as is happening) is probably a very good US strategy to shackle China.

    ''Let it explode'' isn't going to be a firework festival on the islands of Japan alone, watched from afar by Japan haters.

  19. @Help 4:04!,

    Buy hard assets like gold and land. Swiss francs/kiwis are always nice. Get out of debt if you are in it. Maybe secure a property or agreement in another country. Learn to make food if possible, or put some away. Just pretend you are preparing for an earthquake or a typhoon. Become a doctor or engineer :)

  20. Here is a broader explanation of the problem:

    And another interesting take on history

    Mark Dankof’s America Jan 16, 2013
    Ususy led to Japan involvement in WWII;
    Usury leads to environmental destruction -- must have endless growth to pay off debt.

    Japan in WWII: A Casualty of Usury? | Veterans Today

  21. Relax people, Rome wasnt built in a day, and it surely didnt crumble in a day. I live in Ukraine and they've been saying it's going under for the last 10 years. It's still a ticking time bomb today. Sure at some point, it will be a problem but unless there is another trigger like the US, UK, EU failing, it won't go under by itself.

  22. There must be Japanese economists and bankers who have the same opinion as Bass and others. Who are they and is their opinion being heard in Japan?

  23. @Anon 5:24
    One bad thing about securities is that when they lose value they do it very quicky so relaxing is not so easy -- and real estate too tanks quickly sometimes...

    @Anon 2:52
    If you assume you will be able to retain your income in the upcoming years and you think inflation is going to pick up in 2 years getting into debt now might be good: 10 yrs rates are low and inflation is good for those who hold debt at fixed rates.

  24. Would Abe risk it all to prove that he's not a wimp (this time)?

  25. To the Ukrainan, Rome maybe wasn't built in a day, but Caesar was killed in a minute. This thing will get triggered by a Sino-Nippo natsec crisis, same as the sudden Russian invasion of Georgia, August 2008, triggered the meltdown that followed. Everyone rushed the exit doors at once in a rotten real estate house that was already badly decomposing.

  26. What can ordinary Japanese do to prepare for life after the post debt time bomb detonated? In my opinion, they should get out of yen savings and buy gold and silver. When the debt time bomb detonates the yen will be worthless but gold and silver prices will soar exponentially in terms of yen.

  27. Buy ag land in western Japan. Grow food, become self-sufficient. One bag of rice may be able to buy you a house.

  28. Yen won't be worthless, but may be halved. Gold may double , so it's a push, but you can hang on. One bag of rice for a house? do say.

  29. @Anon 2:52
    If you assume you will be able to retain your income in the upcoming years and you think inflation is going to pick up in 2 years getting into debt now might be good: 10 yrs rates are low and inflation is good for those who hold debt at fixed rates.
    January 20, 2013 at 4:49 PM

    The key thing here is ''If you assume you will be able to retain your income...''
    It would be brave to go long Japanese property right now considering the demographics...unless you are in Tokyo or a large urban area...exactly where property is not cheap...and there is no guarantee-if what Bass is saying-that this would be a good place to be when the debt bomb goes off. Probably a nightmare.
    So..safer to go long gold, silver,platinum some other currency and that rice field/mountain and wait out a couple of years. Or, get the hell out of Japan...and go where? Brazil?

  30. Japanese property outside Tokyo??? How about a 1DK apartment with ocean view at the price of a car (300 man)?
    The building is a little old but still -- in Onjuku, Chiba.

  31. Anything with an ocean view in Chiba is probably built on a land fill and would liquify like in the last quake/tsunami.
    Don't be tempted by a cheap price tag.

  32. Hi,

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    International Debt Collector