Kyle Bass made a lot of money in the economic meltdown of 2008. He feels the next economy to go will be Japan. For more on his take watch his CNBC video above.
Bass says that Japan's debt is 24 times central governement tax revenue. It would be like someone earning $50,000 a year with a debt of 1.2 million. Think about that if a person earned $50,000 a year in annual income, the interest on the debt alone assuming a very low interest rate of 2% would be $24,000 a year or almost half of his annual income. That is just interest payments alone on debt. How will he pay his other obligations?
Bass feel when you get into that type of insolvency, there is nothing you can do to help especially printing more money.
When you think of a crisis 99% of the people get it wrong.
When questioned why Japan's economy has not blown up yet despite him being able to predict it, he said that no one can predict with precision exaclty when the meltdown will occur. All the component are in place for all of sudden this will break. Interest rates will be lowest as soon as it breaks. The clock has started when the belief in this untenable situation.
Japan spends 25% of revenue on interest, 50% of revenue on debt service. Any 1% increase of rates cost them an additional 25% of revenue. He feels the Japanese government (and I feel the US government) has been dishonest with its constituents.
The situation is so bad in Japan in the Yen, that he recommends anyone that holds the Yen to spend it and buy a productive Western asset. As a side note, this is something to watch. When the Japanese flee their own Yen and start buying US dollars, US companies, Western real estate, or other non-Japanese assets then you know the meltdown has begun in Japan. This could also include precious metals like gold and silver. When the Japanese start buying in droves gold and silver, you will see the price rise up dramatically.
The likely scenario in Japan is that the elites, wealthy individuals, and others holding a lot of Yen will realize this is an untenable situation. When that happens, they will flee the Yen and the Yen will collapse.
The problem is that before the bomb detonates, things will seem alright. Interest rates will probably be the lowest, the Yen will be the strongest, and more. Then, one day it will just collapse and the run away from the Yen will appear.
Another issue is the relationship between China and Japan. There is a rise of nationalism in those countries and they really do not like each other. Yet, 20% of Japanese exports go to China. That's 340 Billion dollars. If Chinese and Japanese relationships worsen, that will be terrible economically for Japan.
As for the US, he still invests some of his money in the US. He says he is long on anythingwi th real estate. He feels that this is about the time for housing to turn flat and then turn.
In China, he has no positions and he does not know what to believe. He is concerned about non performing loans and other issues. He feels China has set iteself up for a problem down the road. We are spending 10-11% of central government revenue on interest.