Sunday, June 16, 2013

Queerer than we can suppose

The universe is not only queerer than we suppose, but queerer than we can suppose.

How is the Japanese economy going to behave in the near near future - within the next 2 years it seems. 
Kyle Bass now calls it a check mate.

Excerpt I loved:

Beacon Reports: Japan is not Greece. It is a rich developed nation. The Japanese are educated, organized and hard working. The country’s infrastructure – roads, buildings, bridges, factories, trains – are in better shape than most other developed nations. A shinkansen departs every ten minutes and they run on time. The country enjoys reserve currency status. Why should Japan be the first developed nation to mark the beginning of the end of the 70-year debt supercycle?

Kyle: You need to divorce yourself from preconceived ideas. I’ve never met a more gentle, considerate, welcoming, thoughtful, or spiritual population in any other country in my lifetime. Japan is a beautiful country and its people are great. That’s beside the point. The point is the government has mismanaged its finances to an extent where they have moved the country into a checkmate.
The reason why Japan is going to be first is that they spend 50% of their central government tax revenue on debt service alone. They are near the point where they just can’t borrow anymore. Further, the Japanese would rather not admit wrongdoing: They never restructured their banks during the post late 80s – early 90s collapse. They’ve taken rates to zero. Their economy has continued to move along for the past 10 – 15 years because it was export based. That’s changed − there is nowhere to go.
Japan’s trade surplus is negative. The balance of trade is negative. The current account is moving into a negative position. The demography of the country is unstoppably rolling over. It’s a multivariate equation in which everything is working against the government at the same time. Kuroda and Abe have only one way to go – and that’s to go all in – which is what they did.


If a xenophobic society/ its institutions decide to move their assets abroad, where would they go? And wouldn't gold be a simple herd choice? If so, have they been buying gold - and if so, why have gold prices stayed where they are in USD terms? (Sure holders in yen have made potloads of money on gold because of the depreciation).

But if there is a flight away from the country, where would they go?
And what if the Japanese are indeed able to structurally change their behaviour? 
Oddly, the people are not personally indebted, but the government is. Very odd situation indeed.  

1 comment:

  1. I think Japan's capital flight would be to the United States. Their rich would be fine of course but the middle/lower classes will be the worst off. Perhaps a social and political change will then happen which would usher in a new economic system. Hopefully Japan will continue to remain democratic through its transition.

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