"Detonating The Japanese Debt Time Bomb" With Kyle Bass

Tyler Durden's picture

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.


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francis_sawyer's picture



You might be right... but all I know is that a couple of DOWN arrows [from idiots, or bots, or whatever] who don't have the cojones to articulate their views isn't much of an opinion shaper in my world...

fuu's picture

I think we should swap the up arrow color to red, and the down arrow color to green. The utter confusion of shredded comment valuation models would be epic.

You busy Sac?

francis_sawyer's picture

You're probably right...


Someone was just on here the other day saying that a local real estate agent was using that RED/GREEN tactic to fool peple into thinking house prices in the area were rising...

Moon Pie's picture

I think going Sea Foam and Magenta would be lovely....brighten the place up, don't you?

debtor of last resort's picture

It's because one gets an extra foodstamp for downvoting libertarian rednecks. On the record, yes, since about a week or so.

Seer's picture

"They all already bought everything worth buying."

I'm not so certain of this.  I'm kind of thinking that companies still own stuff of value (mostly machinery and process rights) and governments own all the trash that said companies were over-producing.  Cecil Rhodes put it all out front and center when he'd stated that third-world countries are the dumping grounds for surplus production.  Well... we've kind of run out of third-world dumping grounds and instead were dumping on ourselves.  And the real worm in the apple was that we shifted to construction as the economic driver, and construction (end product) cannot be readily exported (though construction companies can operate abroad).  Obviously, "no one could have seen this coming"...

Anyways, I think that it's even worse in that the govts own shit that NO ONE cares for anymore.  Think of it all as perishable shit that's passed its expiry date, stuff that we can't peddle to third-world countries as write-offs ("humanitarian aid").  Stuck holding the bag of rotting perishables...

economics9698's picture

Here is a blog I did about how to correctly balance a federal budget so we all do not implode, but of course that is too late.

Any way it's a simple method that incorporates incentives for federal government s to avoid inflation taxation and forces responsible spending that results in surpluses most years but allows deficit spending in bad economic years.    


 It is relatively simple:

1. Restrict federal spending to a percentage amount. Here in the USA because we have income, payroll and corporate taxes but no value added tax (VAT) we have historically collected around 18% of the GDP in federal revenues. This has varied little since WWII with the exception of today and the late 40s. Other countries will have to evaluate this percentage on a country by country basis but keep in mind for ever 10% of government created the economy loses 0.5% to 1.0% in GDP growth per year. This adds up over time very quickly.

2. Subtract two years from the budget year. 2013 – 2 = 2011. 18% of the nominal 2011 GDP.

Finished. 18% of the 2011 GDP is $15.075 trillion x $2.7135 trillion. Current tax receipts are $2.671 trillion with the resulting deficit of 43 billion. Quite a difference from the trillion dollar deficits we are currently running.


tarsubil's picture

Why balance the budget when you can just print money? They don't want to balance the budget. They want to sniff cocaine and molest cocktail waitresses.

fonzannoon's picture

When u put it like that i almost sympathize...

Seer's picture

Sorry, but my time is limited right now, in which case I'll just ask you directly:

What about growth?  Are you proposing it?

If you are premising our future on growth then you're STILL heading us over the cliff.  Promoting perpetual growth on a finite planet IS a Ponzi!

Harbanger's picture

"oh yeah, cuz I'm so loved here as it is. "  It's not about "love" or wanting to be loved. It's the hat you're wearing.

JeffB's picture

I don't know about that. I think there are quite a few examples of countries that went from years of inflation to... hyperinflation.


Of course, they paid for it afterwards as well, but I don't think a deflationary collapse prior to a big jump in inflation is a foregone conclusion by any stretch of the imagination.

secret_sam's picture

"Deflation" is when the bankers lose the pot at the poker table. 

"World War" is when they flip the table over in the middle of a hand and dash out the door with whatever they can carry.

Seer's picture

Food, Shelter and Water.

Let the bastards run away carrying a bunch of worthless shit.  "Solution" is to not let them come back AND to not recognize whatever they are trying to pawn (or use as a "currency").

I'm staying put.  Land/ground is worth more than all the bankers put together (dead or alive).

NidStyles's picture

Deflation is a good thing, that is what the problem is, too many chumps screaming bloody murder over a good thing. Why? Because you've been told to almost all of your life.

Gazooks's picture

not good for anyone/thing absolutely dependent on negative real rates


like a 700T derivatives Ponzi, an army of Corzine clones


and their vested victims

Burr's 2nd Shot's picture

I am not so sure that is true if one is a producer. In addition, I am guessing you are pro price deflation, and not wage deflation, but you won't get one without the other.

BigJim's picture

yup.. you can have prixce deflation without wage inflation; and, as production tends to become more efficient over time, it's the norm in an economy with a stable money supply and low population growth.

Of course, wars slaughtering millions of consumers/producers, escalating energy/resources costs, baby-boom demographics, employment regulation, immigration, and central banks flooding the world with currencies make it all a bit moot.

Seer's picture

When speaking in terms of Austrian deflation that would mean a reduction in the circulation of a thing (money).  And when that "thing" might be food?

"Men argue, nature acts." - Voltaire

"Economics" is just man arguing...

Dr. Engali's picture

The problem with your chart is we haven't always been the world's reserve currency. The approximately 7 trillion outside of the U.S paints a different picture. I will agree with this though... in the world of digital money and little actual cash it is hard to tell which way things will go. We could have massive deflation if the digital money all disappears. It be interesting to see.

EnslavethechildrenforBen's picture

Yeah sure...

and time will start going backwards, right?

Dr. Engali's picture

You have a point? Do you think that if all the digital money disappeared tomorrow and all that we had was the cash on hand that we would have massive deflation or inflation?

fonzannoon's picture

Doc I honestly get lost there. If digital dollars disappeared would it matter if food/gas prices etc. dropped massively if no one had any real dollars to buy them with? Sure Kito would have his huge stash of cash but he would be one of very few that do, and it would not be long before the zombie people watched him doing supermarket sweep and got agitated. Very similar to how the gold bugs would be chased all over town in hyperinflation.

I have no idea what the hell I am talking about anymore. I stopped drinking for a few weeks...I work better on the sauce...

Dr. Engali's picture

I'm with you Fonz... My gut tells me hyperinflation through and through, and I'm planning around that scenerio. But I always find myself pondering Kito's point and I think it's a valid point. All I know is the longer this mess drags out the more I tend to overthink things. It's rather maddening.

I was going to work out, but I think I'll have a drink instead.

EnslavethechildrenforBen's picture

By adding another zero to your theft spree you in effect can steal ten times as much. Two zeros and you can steal a hundred times more than you were previously stealing. No human can resist that temptation. What people refer to as the debt is in actuality just the amount that has already been stolen to date. That will not lessen because everyone likes money. Deflation is the stupidest concept you ever hear about. Now grow up.

Terminus C's picture

Right... because deflation has never happened before...

Grow up indeed, those who claim to know the future of this mess and shout down any who disagree with ad hominem attacks are charlatans.

nope-1004's picture

Name one nation, country, or culture that collapsed as a result of deflation?  Japan has been in a deflationary spiral since the early 90's.... yet it keeps going until, as Bass says, currrency collapse (ie. hyperinflation).

I just don't think central bankers have the courage to do what is right and let large institutions fail, so we bail until collapse.  Been done many times before.


mkkby's picture

Right.  And when was there ever deflation without a gold standard in place?  Fiat inflates, period.  A gold standard can deflate.

JackT's picture

We all over think and worry. Watch the dumbasses pull it off somehow just to spite those who actually give a damn.

green888's picture

I have come to the end of thinking, content to read comments

Seer's picture

What you're pondering over is "affordability."  I'd taken up this position of argument YEARS ago when engaged in the discussion of future oil prices- I said that what mattered was "affordability;" if prices are "low" and you're unemployed then what does "low prices" really mean? and if you're employed and the prices are "high" what do "high prices" mean?

I can, with certainty, state that most things that are more directly associated with essentials/fundamentals (Food, Shelter and Water) WILL become less affordable for the whole (which, if you consider the 7+ billion on the planet, is pretty much the way it has been).

Harbanger's picture

How can they make digital money just disappear without someone losing that money?  The new money being created is the only thing keeping the economy from crashing. 

CPL's picture

What if someone made a massive head fake on the value of a dollar?


Dollar would be ended the same second.  Instant fiat death.

EnslavethechildrenforBen's picture

Newly printed money is what destroys an economy unless it goes straight to the bottom of the economic pyramid. It never does.

Say you lived on a small island the size of a few square blocks. Say one person on that Island can write unlimited checks, so he buys all the land, homes, petroleum, Gold, etc. Soon everyone spends all the paper and their broke, one or two people have hoarded it. Then if you want to buy it your stuff back, Mr.Checkbook is the only man with money so you have to work for him and he pays minimum wage. Plus, he raises the price of everything by 500% because he can, he owns it.

Now exactly how is this supposed to be good for the Islands economy?

fonzannoon's picture

i totally reject that example because it makes me feel very uneasy thinking thats what is going on.

back to my happy place...

Rusty Shorts's picture

Mr. Checkbook would be dead, dead, dead. - King Louis XVI

Doña K's picture

He forgot a detail on his scenario. The checkbook master has several enforcers and several people in the island receiving welfare who would defend him against the masses. Additionaly, he has taken away all guns except the ones for his enforcers. Sounds familiar?

O"bummer will take guns away and pull a Chavez on the US. If he will not do it, at least he is thinking about it. He will fail of course. The good ole boys will never give up their guns. 

GetZeeGold's picture



He forgot a detail on his scenario


Fortunately.....he never saw the bullet coming.

secret_sam's picture

       The power of the printing press can only be entrusted to angels. 

Seer's picture

"The new money being created is the only thing keeping the economy from crashing."

No, it's the "appearance" of "new money."  That is, it's the illusion.  How many times do we hear how important it is that people have "confidence" in the USD (or whatever currency)?

This supposed "new money" isn't backed by anything.  So, there's really nothing being held up other than the illusion.

The bankers and military "men" have been getting most of us (those not of the 2/3 who live on $3/day or less) an elevated standard of living (and they take a BIG cut for their part).  When we can no longer pay these folks (whom we're becoming to like less and less by the day- read "less willing to hand over bribes to") then the illusion is over, the "economy" crashes.

CPL's picture

The script never changes.  Print print print.  Or Massive deflation.


Both lead to trade war positions.  Ethier for inflating the dollar strength against the debt owed.  Or claiming insolvency by erasing the memory of the central bank main frames.  The outcome will result in shortages and bad blood for everyone involved on all levels.

These are only symptoms of a larger problem aren't they.

Seer's picture

"These are only symptoms of a larger problem aren't they."

"war positions"

ALL wars are about resources.  The "larger problem" lies with our inability to perpetuate the growth meme (which requires resources).  I'm sure that if we're all "free" and the bankers are all shot that this "larger problem" goes away </sarc>.

zorba THE GREEK's picture

And "Boom goes the dynamite" Japan becomes Greece x 2.

piceridu's picture

China could go boom too...Bass is asked about China and he says he doesn't believe their numbers...here's why: 


How dumb can the idiots at Cat be? 


tango's picture

I heard the interview live (a tour de force of logic and thought) and the reactions of the "hosts" were interesting.  Some were clearly skeptical yet most seemed to understand exactly what he was saying and most seemed to agree with him.   I'm not one of those constantly griping about CNBC and their hawking of stocks.  Sometimes you can learn a few things and most of the hosts are clearly fed up with Obama and company.