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.

Amen.

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