I was listening to Kyle Bass' forecast of what he sees as the coming financial collapse of Japan. A link to that presentation at the Booth School is included below.
Here are two key charts that I obtained from Wikipedia that weigh on the economic situation in Japan. They are a bit particular to that country.
Japan has a largely homogeneous population sharing a common racial heritage and language. There is little immigration other than a few guest workers, and a shortage of natural resources. It does have a strong store of intellectual human capital, a highly motivated and capable work force, and a remarkably strong central planning structure. The public is unusually cohesive and oriented towards the common good.
I think that although it is packed with facts, Kyle Bass's analysis is a little overly simplistic, and not completely fungible to other countries as he implies in the Q&A as indicated in the talk below.
I am a little disappointed that Mr. Bass deals with the externalities through the numbers, but never discusses the structure of Japan's economy and the keiretsus, which is very important, and far from incidental. He also gives a nod to Japanese culture and then dismisses it. That also is an error, but it is a very common Western error, and he has plenty of company. After all, inside every foreigner is a greedy, self-serving American style plutocrat just waiting to get out, right?
He also ignores the enormous private losses from the real estate bubble that were never realized, and were essentially buried by the industrial-financial combines together with a single party government of well-intentioned insiders.
He says that Japan is already in the zone of insolvency, and it is obvious that they will collapse. I think that this is possible, but not inevitable. If there ever was a case to be made for MMT, or some sort of debt restructuring in the model of Iceland, another island nation, Japan might be it. I suggest the latter might be more fruitful because of their dependency on natural resource imports.
Japan's strength, as always, is in what is not seen, not so readily apparent, to Western eyes.
The primary obstacles to restructuring are the scarcity of natural resources which presumably must be imported, and the lack of population growth with immigration as a threat to racial homogeneity. Available real estate and population density on an island are also key factors. These are the classic scenario inputs that lead to colonial expansion which seems not to be a viable option at this time.
The comparisons to the US situation are overly glib and miss the key differences. The solution for the US is growth, and it has all the options open that are so problematic for Japan.
What the US lacks is a more public spirited policy making apparatus, one that is not captive to special interests. It labors under the corruption of big money, and suffers from growing wealth inequality that is beginning to approach a third world oligarchy. Japan has a GINI coefficient of 38, whereas the US has a coefficient of 45, and increasing.
I am not so much concerned for Japan, but for the tangled web of carry trades, derivatives, fraudulent misrepresentations, and leverage that is the Western financial system. Japan would certainly be large enough to give it a stress test beyond the Fed's most rigorous scenarios.
The financiers such as Kyle Bass might be more concerned about this, and not look so greedily at the situation as just another money making opportunity, if they were not so arrogantly sure of a US dollar bailout at any and all costs, even in the event of a major financial dislocation that begins abroad.
Here is a recent talk by Kyle Bass regarding 'The Coming Financial Crisis in Japan.'
From Zero Hedge:
Kyle Bass, addressing Chicago Booth's Initiative on Global Markets last week, clarified his thesis on Japan in great detail, but it was the Q&A that has roused great concern. "The AIG of the world is back - I have 27 year old kids selling me one-year jump risk on Japan for less than 1bp - $5bn at a time... and it is happening in size." As he explains, the regulatory capital hit for the bank is zero (hence as great a return on capital as one can imagine) and "if the bell tolls at the end of the year, the 27-year-old kid gets a bonus... and if he blows the bank to smithereens, ugh, he got a paycheck all year." Critically, the bank that he bought the 'cheap options' from recently called to ask if he would close the position - "that happened to me before," he warns, "in 2007 right before mortgages cracked." His single best investment idea for the next ten years is, "Sell JPY, Buy Gold, and go to sleep," as he warns of the current situation in markets, "we are right back there! The brevity of financial memory is about two years."
http://www.zerohedge.com/news/2013-03-12/kyle-bass-warns-aig-world-back
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