Kyle Bass On The End Of The Debt Super-Cycle

Tyler Durden's picture

"When you let the politicians run monetary policy, well, that is how it [ends]... All of the ingredients are there [for Japan now] for this vicious cocktail to fall apart" is how Kyle Bass concludes this broad and succinct recent interview. With total credit market debt-to-GDP globally around 350% (or ~$200 trillion), his thesis remains that many countries will reach their profligate endpoint soon (if not already in Greece's case - where investors have already lost 90c on the dollar); but that managing around this current evolution is the single-hardest period for investing of the last few decades. The modest Texan notes it is naive to think he can call the end of a 70-year debt-super-cycle with any precision (as in mid-December's Japan fiscal data and Abe's election) but when you look at all of the inputs, he believes that Japan has crossed the proverbial Rubicon in the last two months and describes in this rather breathtaking clip how the end of twenty years of conjecture on what will happen to Japan will come to pass.


From his belief in the possibility of ongoing rate compression in developed nations and negative nominal yields in more than just Germany and Switzerland, Bass expounds on the structure of his fund (funding via low-duration 'high'-yield vehicles along with a long-short equity book and the core 'convex' Japan credit book) and how his template is playing out... must watch



and more detail in his recent letter to investors:

Kyle Bass

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
fonzannoon's picture

I understood it to mean he was interested in going long the yen after he rakes it in when they massively devalue. I am also a bottle of merlot in the hole....

Pretorian's picture

How about mentioning Japan unscheduled election this year with LDB coming back. Thats the first important thing he didnt mentioned.


BigInJapan's picture

He did mention it.

He spoke of Shinzo Abe coming in as Prime Minister on Dec 16.


Shinzo "We will print to infinity" Abe.


He's had the job once before, and quit. Shinzo "I have to retire. The Prime Minister's job is too stressful" Abe.


It's real. The Yen is toast, as is the independence of the Bank of Japan.

Shizzmoney's picture

"When you let the politicians run monetary policy, well, that is how it [ends]"

Wait, Bernanke, The Great Chairman, is up for public re-election?

buzzsaw99's picture

after listening to him talk his book millions more people made deposits into their bank accounts as fast as they could.

archon's picture

Millions of people putting gobs of money into their bank accounts is not a problem.  Millions of people all deciding to spend it all at the same time is a really big problem...

hmmtellmemore's picture

He needs to ignore Japan and focus on France.

gjp's picture

How about the US, ultimate origin and biggest benificiary of our financial scamtastic world?

hmmtellmemore's picture

The US and Japan have printing presses so things can be delayed there the longest.  I'm not saying that things won't hit the fan there, all I'm saying is that they will be last as money flees from places like France.

gjp's picture

Fair enough, agreed? But the printers won't let europe go either, I think.

dtwn's picture

I agree it would be interesting to see what his analysis on France would be.  I think that prior to France though, that the focus shuld be turned toward the trio of Spain/Italy/UK, as I think that restructuring within this group will be the big trigger that will eventually lead to France.

gjp's picture

"when you let politicians run monetary policy ... This is how it ends"
Right, and it's so much better when 'sober', sophisticated bankers just take care of everything for us. Give me a break, the whole notion of fiat monetary policy and central bank independence is a joke. Fiat is just a vehicle for the politicians and bankers and yes, hedge fund managers too, to fleece the public. Call a spade a spade kyle.

Fred Hayek's picture

I suspect that Bass actually agrees with you. Ridiculing one side of the false dichotomy typically presented doesn't mean he's in favor of the other equally ridiculous side.

Snidley Whipsnae's picture

gjp... did you read the letter? Bass cannot call a spade a spade and remain in the position of 'fudiciary responsibility' that he holds. He has to appear to be sane to the jokers that are still on the same page as the Keynesians. Not easy.

It's easy for us to spout off daily. Not so easy if you are in management of a large fund and wish to avoid getting your walking papers.

He says what is necessary in such a way as to avoid getting canned... and, he does a damn good job of it.

FutureShock's picture

No, wrong Bass went to Wall Street and schooled them on their business CDO models that increased forever and showed them what could happen, they said "thanks we got it" Hedge Managers fleece wall street who fleece the public and their own clients but Bass made the effort before he capitlaized. Also spoke to members of Congress who not their head and realize they can't do anything to help as they will not get elected.


ytraderx's picture

The bond market is in a bubble and it's going to collapse. The US has $222 trillion in unfunded liabilities. And the Fed can only buy so many Treasuries before inflation starts to spiral out of control. Treasuries are the most dangerous investment in the world right now. Check out this article:

PaperBear's picture

And silver is in a 140-year cycle, what symmetry.

CunnyFunt's picture

TBT is going nowhere fast.

GreatUncle's picture

Debt super cycle, total load of rubbish.

When in a modern society you bring forward spending by borrowing from the future you end up with a shed load of debt that should have been the stable spending for the next 50 years or more. This spending so encouraged and sought after by all the politicians was because without it the economic system would have ground to a halt long ago. The self destruct mechanism is where you borrow ever larger amounts "from the future" yet only service the interest through deflating debt away and you end up with a debt UXB and no way to disarm it.

hmmtellmemore's picture

What does debt UXB mean?  And also, where are we all headed in your opinion?

CunnyFunt's picture

It's a Brit acronym for "unexploded bomb".

GreatUncle's picture

Think the next comment explains what I mean about UXB.

You asked me for my opinion on where we are heading.


Where any artifically induced growth in the system will be cancelled out by inflation.

MsCreant's picture

You are very optimistic. Wish I could be too.

Landrew's picture

I see no inflation in our future, only delfation.

hmmtellmemore's picture

Many people have predicted dual deflation for bank reserves and inflation for consumers.  Something to consider.

Pancho Villa's picture

Japan has a huge debt/GDP and a huge pulse of Japanese will celebrate their 65th birthday between 2010 and 2015. Of all the developed economies, Japan's worries me most.

Japan's baby boom peaked about 10 years before the US baby boom. I'm watching to see what happens in Japan in the next couple of years because I think the US will be in about the same position in 10 years. US debt/GDP seems to be roughly following Japan's ratio, but 10 years behind.

Hayabusa's picture

Pancho Villa... hit the nail on the head!  Watch Japan for a preview of coming attractions here in the U.S.

dtwn's picture

I'd add watching the UK/France also for a preview of what's coming to the US.

Landrew's picture

Sorry, the ratio is exactly the same now, the mix is different. We have far more private debt then they have public debt NOW.

blunderdog's picture

If we DO actually see negative NOMINAL bond rates, we'll have a potential new USian industry.

Large institutions may want to lease out space to warehouse pallets of FRNs. 

Maybe mining companies would be able to put those big empty holes back to productive use...

MsCreant's picture

I have so many lewd things to say...I don't know where to begin...

Radical Marijuana's picture

I find these efforts of intelligent, well-informed people to be "realistic" to be relatively amusing to my macabre sense of humour. The perspective and the language that people like Kyle Bass bring to these issues, and use to talk about those issues, display an awesome irony, although, of course, they do not intend that.

Let us reconsider and recast what are the deeper social realities, with the language that these kinds of financial experts employ to try to talk about that. They are attempting to be more "realistic." They have good reasons to care whether their bets are going to match the real world. However, the BASIC WAY THEY TALK IS BULLSHIT!!!

The "seventy year debt cycle" is a 70 year fraud cycle.

The changing of the possible public control over central banks is the result of those banksters operating their runaway frauds to such an extreme degree that the public systems are being destroyed. Meanwhile, all of those public politicians come out of their traditions of being goofball puppets, who will NEVER talk about what was actually going on, and therefore, can not possibly offer any better solutions to those problems!

Almost all of the "investment" done by "investors" is based on taking advantage of money made out of nothing to gamble with. The central banks were the best organized gangs of criminals, that made and maintained the gaming house that the "economy" operates within!

The actual path we are on was that the banksters were the best organized gangs of criminals, which were able to covertly take control of public governments. Their system them became more and more runaway triumphant frauds! Those systems grew and grew, until now there are no longer any private players that are big enough to still control it. There has developed an awesome ouroboros of incorporated robbery, that has eaten itself! The accumulating "success" of the best professional liars and immaculate hypocrites dominating civilization creates their own paradoxical developments of final failure from too much of their "success."


The central feature of these historical developments was the assassination of politicians that could not be bribed or intimidated. Around that, there was layer after layer of bribery and intimidation of politicians, aided and abetted by more and more control over the mass media. Thus, there was the gradual growing of the triumph of organized crime controlling the government, which then controlled the rest of economic activity.

The core achievement was getting counterfeiting by privately owned central banks LEGALIZED. From then on, all other investment decisions become more debt based. In the background, as well, since that kind of fiat money system depends on the power of taxation to force that fiat currency to become the legal tender throughout the whole society, investment decisions become more and more based on tax considerations.

Between both aspects of the runaway triumph of organized crime covertly taking control of governments (namely, the debt based, money made out of nothing, and the tax based, enforcing money made out of nothing as the legal tender) those considerations eventually overwhelm every other aspect that should be part of the economic decisions being made in a market. The alleged "free market" of "capitalism" adapts to more and more become runaway organized crime, within which money is made of out nothing, and the taxation of that flow is the main thing that keeps it going, and directs where it goes.

Since the money is backed by murder, and the debt controls are based on the death controls, the problem with the public politicians, who are supposed to be responsible for representing the sovereign will of their people, is that they become nothing more than goofball puppets, working according to the directions of the best organized gangs of criminals, who have formed a shadow government, and who end up becoming more wealthy, and more powerful, than the governments which become indebted to them, and thus, controlled by them.

The real flow of control was from the covert death controls, on throughout the overt death controls. Meanwhile, most people get completely brainwashed, mainly through lies by omission, to not understand that, and to not want to understand that. Therefore, again, and again, and again, the people's representatives, employing the sovereign powers of those people, as manifested by the police and army, back up the privatization of the planet, through runaway triumphs of financial frauds.

As these runaway frauds reach their turning points of final failure from too much "success" for too long, it continues to be practically the last thing discussed in the public space that the public needs to understand that they should run the murder system, so that they actually run the money system. Instead, the public pays for the shattering insanity of their systems.

The language that an intelligent and well-informed individual like Kyle Bass employs is BACKWARDS. The amusing thing is to watch how he is being forced to become more "realistic," in order to do his job, BUT, he can never become sufficiently realistic, since he has to continue to use presumptions that are BACKWARDS!

To turn things around requires seeing that the central banks became the best organized gangs of criminals, that took control over the political systems. The genuine solutions require that "the people" understand that, and thereby take back control over being the best organized gangs of criminals, that thereby take back control over "their" money system, and the economic activities which that money system mediates.

DirkDiggler11's picture

A long winded bunch of bullshit. Why did you bother to post this? To hear yourself talk ? You offered no real assessment of what parts of Kyle's logic you think is flawed, and you offer no solutions to what you are bitching about, and it took you 13 fucking paragraphs to spit out virtually nothing. Go copy and paste your re-heated bullshit somewhere else. I want the 5 damn minutes of my life back that I wasted reading your ass vomit.

Radical Marijuana's picture

Well, Dirk, my main objection to the logic of Bass is his view that politicians interfering with central banks is a bad idea. The existence of privatized central banks, able to legally counterfeit the world's money supply, is the one of the worst ideas there has ever been!

The first step would be to audit and end the Federal Reserve Board. However, to attempt to do that is to attempt to take on a gang of trillionaire mass murders, who currently dominate practically the whole world, with an organized systems of lies, backed up by violence, which lies and violence were legalized, because that system took control of the puppet politicians. Those are actually the MOST IMPORTANT POLITICAL IDEAS! I bother to research and post these issues because they are the most important political problems that exist today.

Here is a collection of many videos, most of which have been featured on Zero Hedge before regarding that history, and WHY understanding the history of money is vital to understand WHY those systems have reached debt insanity levels.

When Bass starts off by saying that the world is about 200 trillion dollars in debt, almost three times more than the total world's GDP, you should ASK WHO HAD THAT 200 TRILLION TO LEND? The answer is that private banks made it ALL OUT OF NOTHING AS DEBTS!

Bass appears to be a much better than average professional money manager. However, the PROBLEM is that he operates from INSIDE that system, and takes it for granted. It is that system as a whole which is the PROBLEM, and which therefore is destroying itself, by having created so much debt that the debt slavery system it made and maintained has, by the numbers, become DEBT INSANITY, which will probably end in world war, and martial law.

Of course, my dear Dufus Dirk, you are entitled to ignore those social facts, of insane runaway debts, likely leading to social collapse, and assert that I wasted your time by pointing those out. You sound like another mainstream moron, Dirk, with nothing but insults to sling around.

Hayabusa's picture

Look everyone Radical Marijuana thinks outside the box - he must be smokin some good shit!  Although I do not agree with

backward take on Kyle Bass's logic, I do agree with the bulk of his post.  IMHO at least he sees things as they are in regard

to our monetary system and the gangs that run it... into the ground.  I think a lot of people are incapable of thinking outside

the box and sifting through all the bullshit... this guy seems to have no trouble in that regard.

FutureShock's picture

Bass is smart enough to get on the death list I suppose.

1. He was not asked how to fix it, the EU can't be fixed, he says re-structure and that means default. Once he said it is easy to fix the US but no politician would even consider what needs to be done or get re-elected.

2. He is a fiduciary not a politician or a spokeperson for the debt growth ponzi scheme we all live in. His job is to get yield for his clients with the world at hand, not inform people about fractional reserve banking. The highest level politicians out there should be ending the fed, and the sheeple have no clue, education is a waste of time and at this point as the end game is comming.

Though many or your words are not incorrect, Bass and people in reality are above your "backward" cries


Radical Marijuana's picture

Yeah, Futureshock, you are RIGHT!

I read Alvin Toffler's book, as in your name, back in 1970, when it first came out. The exponential growth of the total debts of Americans, and pretty well the whole world, has been the main fulfilment of all the rest of the exponential growth curves that his book pointed out back then.

Chapter by chapter, Future Shock went through how everything one looked at was on a runaway exponential growth curve. At the same time, another book was the Limits to Growth. Both combined appear to have been generated by the same kinds of intellectual elites that generally made and maintained those problems in the first place. As far as I can tell, the only "practical" and "realistic" solution that those elites have prepared for is war and martial law.

Each individual participant is in a runaway "tragedy of the commons" ... which was another early essay like those two books. The privatization of the planet is making that overall problem actually worse, not better! As far as I can tell, there is NOTHING that anyone can do but make things worse. The only differences are the rates at which we make things worse. The fundamental social pyramid system is the problem, and nobody exists outside of that enough to be able to do anything about it.

I might attempt to "think outside of the box" but obviously I must still live within it, along with everyone else. The only vain fantasy is that we MIGHT be able to better catalyze a limited collapse, IF we better understood what was happening, and IF, IF, IF that collapse was limited enough.

The exponential growth of debt, reaching the level of debt insanity, is what most of the articles on Zero Hedge are about, and this is one of the few Web sites where I find any deeper understanding of that process. However, since that is the case, there is currently nothing that can be expected other than more and more insane runaway making more money out of nothing, as debts, without end, until whatever, whenever ... which will probably murder me, and many, many other people ... but which nevertheless is theoretically important enough to attempt to understand.

dtwn's picture

For fuck's sake, Kyle Bass is not the enemy here.  He's just a guy that made some money because he had an idea that was counter to market psychology at the time.  He was correct before, people seem to like his ideas (his last letter got 220k reads in 3 days apparently), and he's just giving his opinion about what is going on now.  He's just basically telling us what he sees based on whatever data he's looking at.  If he's so backwards, what's your grand thesis?  The data's out there.  There's no agenda here on Bass' part other than to make money off of what he sees in the system.  

Radical Marijuana's picture

Yes, dtwn, I was just using Bass as a kind of "whipping boy."

We are living in a Bizarro Mirror World where everything is backwards, on level after level of the infinite tunnel of deceits. Obviously, the first and foremost solution is to stop making "money" out as nothing, by allowing the money supply to be controlled by a privatized legal counterfeiting ring, namely the central banks, and their overall banking system. That privatized fiat money is a fundamentally fraudulent financial accounting system which is insanely backwards because no matter and no energy, therefore no goods, and no services, ever can be made out of nothing, nor sent to nothing, BUT, fiat money gets made out of nothing, as debts, and can disappear when the debts are repaid or defaulted upon. 

My "grand thesis" is to make political science be perceived in ways which are consistent with physics and biology, and the energy laws, and general systems theory, that are used to understand everything else throughout those realms. The paradoxical problem with that thesis is that human sciences are in a head-on collision with the Oedipus Effect, as manifested in the history of warfare, where success in war depended on deceits, and thus, those who were the best at being dishonest won the wars. Thereby, the history that made War King then made Fraud King.

The central banks are currently the Fraud Kings. I do not propose the impossible of stopping that from existing. Rather I propose it is possible for more people to understand that, and therefore, have a better kind of arms race between the different social groups, so that we could make and maintain a better dynamic equilibrium of the relative rates of social robbery. I will not attempt to explain here how radical my concepts about the synthesis of ancient mysticism with postmodernizing sciences are. However, that system of understanding is the basis of my "grand thesis" regarding the required revolutions in the monetary systems.

I have never tried to make money inside the established system, and therefore, I do not expect anyone who is interested in making money inside those established systems is going to care about what I have to say. I am not offering any "actionable intelligence" in that sense. For several decades, I have been saying that the money system was insane, and that it was not good enough to beat that system, but rather, it was necessary to defeat that system. I have never been interested in making money within the established systems, because I have always been convinced those systems were runaway insanities, which would destroy themselves.

Up until 2008, far, far, far fewer people saw that. Several decades ago, it was hard to find even one person in a million who understood that "money" was being made out of nothing. Now, I think we have gotten up to maybe a few people in one hundred have nodding acquaintance with that concept. IF we survive to get to the point where 5% understand that well, and 20% more understand that generally, then we might finally see some revolution in our financial systems. One could say that my whole life has been day dreaming and preparing for that possibility.

logicalman's picture

How about factoring in that just about every Japanese resident is going to be a bag of cancer in 15 - 20 years thanks to Fuck You Shima?


Long chemo drugs?


What a fucking mess the world has become.

TNTARG's picture

Indeed. The World should be working on that matter instead of bombing around and speculate with "derivatives" or "derivates" or whatever. Do we think radiation is gonna stay still over Japan and in the japanese sea? They're not the only ones who are gonna be cancer bags in 15-20 years.

TNTARG's picture

"When you let the politicians run monetary policy, well, that is how it [ends]... All of the ingredients are there [for Japan now] for this vicious cocktail to fall apart"

Well, banksters are running monetar policiy in the USA as well as in Europe. In many countries banksters emplyees were de facto put to run governments too, as in Italy.  So the whole post is full of s..t.- The guy starts with a false premise.

logicalman's picture

When money comes into existence as debt, at interest, in a fractional reserve system, it's bound to end in tears whoever gets to run it.


Rainman's picture

I read the whole letter and it was excellent. I was about to jump out the window in despair, but decided instead to dig a hole to store my gold.

THE DORK OF CORK's picture

Japan is a semi sov country..................

Most of Europe is not...........


As long as that continues it will suck resourses from Europe


Start of something big ?


A nuclear icebreaker is a expensive boat for hire is it  not ?

EscapingProgress's picture

Kyle Bass is awesome.