While Kyle Bass notably remarks that pinpointing the end of a 70-year debt super-cycle is naive, the combination of the resurgence of nationalism (impacting trade with China [10]) and the dreadful impact of the earthquake/tsunami (drastically changing Japan's supply chain) has secularly shifted Japan's trade balance for the worst at a time when the current account is already negative. "They are all in denial," Bass notes as the government has failed to deal with its problems over the last 20 years.
Simply put, Japan needs a Schumpeterian 'creative destruction' moment instead of the constant rolling of debts and expanding of government balance sheets to paper over the cracks. The 'moment' feels like it is now, he notes, expanding that "JPY could hit 200," as they lose control; following two decades of volatility-smoothing, the chance of a disorderly collapse are high.
Critically, he fears, "the social fabric of Japan will tear," as with one-third of the nations at retirement age, the fallout from the policies of Abe-Kuroda could cause them to "lose 30-50% of their life savings." What is perhaps even more concerning, he adds, "you are starting to see the central banks not trust each other."
At a certain point in time, "nationalist interest takes over the global [G7] kumbaya," and that is occurring now.
"When your debts are 24-times your government tax revenue, you have a secular decline in population, and all of the things are finally catching up to you, what happens when you have a debt crisis?"
Central Banks believe "Devaluation is 'supposedly' the way to freedom"
3:00 - Japan's tearing social fabric
4:30 - G7 Kumbaya unwind
6:00 - "There is no way out" for Japan - it's a matter of when not if. And "if there is no way out for them, there is no way out for the rest of us - unless we change the way we operate."
6:30 - "If there is no consequence to the US profligacy [rates not moving against them] well then they will keep spending." - "Central banks are enabling the spending"
7:15 - "The Modus Operandi of the west is running deficits; and what that has meant in the past is runaway cost-push inflation - and I think that is what we are going to see"
8:00 - "Investors are too complacent" - this is the single-most riskiest time to be complacent in our generation - "investing with the typical endowment model... is not going to work"
9:00 - "The insidious nature of a runaway inflation is that it bankrupts the middle class... the poor stay poor, the middle class (with savings in the banks) get wiped out, the wealthy (with productive assets) do the best"
9:40 - ... which leads to social unrest globally - and that is a problem...