Friday, December 28, 2012

5 Reasons Why Kyle Bass is Wrong About Japan


7 comments:

Mike Norman said...

One correction, an adding mistake on my part. If the trade surplus is 1 and the fiscal deficit is -10, then the private sector balance is 11, not 9.

at 07:28 on the video.

CyrilD said...

I'm a brainwashed Austrian goldbug and member of Bass'cult (an others of his ilk). It seems like there is no other person out there critiquing their views, so it's nice to hear some challenges to their doomsday prophecies rooted in another era. Bravo!

Anonymous said...

How many drugs do you think Mike Norman has consumed in his life? The guys brains are scrambled. His rebuttals to Bass's presentation would be embarrassing to any educated person. I am short then yen and the bond, just like Bass has suggested. First the yen cracks then the bonds collapses. Mike Norman has been relegated to a blog, nice.

y said...

Mike

Japan's debt is only the size it is because people want to save so much in yen - mainly the Japanese themselves. If they didn't, there wouldn't be any reason for such a large government debt.

If foreigners that hold yen and JGBs decide they don't really want them any more, the worst that happens is the exchange rate falls.

Pete Petepete said...

Bass' main argument about Japan is this (which was not addressed in Norman's video):

Japan's debt to tax revenue base is around 25 to 1. When this ratio gets to be this big, there arises a non-linearity between tax revenues and expenses. More inflation at this level makes the government's expenses rise exponentially while their revenues rise only linearly.

In these situations, the only conceivable way the government can stay nominally solvent is by rapidly accelerating its money printing. But this will only make its expenses increase even more relative to their revenues, which necessitates another acceleration of inflation. And so on until there is hyperinflation, which leads to economic chaos and social breakdown, and a collapse in people's real standard of living. This is the case even as the state remains nominally solvent and does not default.

Non-defaulting states does not mean social order. Many examples throughout world history (e.g. Weimar -> Nazism) show incredible disorder can come with too much inflation.

glenzo said...

so, no nation has ever gone bankrupt since almost all of them can print money to cover it?

Tom Hickey said...

so, no nation has ever gone bankrupt since almost all of them can print money to cover it?

A country running on a fixed rate regime or which borrows in another currency can be forced into default under operational rules.

A country that is sovereign in its currency, that is, runs under non-convertible floating rate regime and does not borrow in another's currency, cannot be forced to default under operational rules, but can default "strategically," that is voluntarily through a political decision.