Kyle Bass is notorious for his provocative statements and one of his most provocative ones is his speech which he gave at AmeriCatalyst in 2011. He then presented his opinion on the short yen which now gained some credibility as the yen continues to plummet but yet this is just a single thing in a series of predictions for the future, according to Bass.
If Kyle Bass’ reasoning turns out to be right, the world will probably face another financial crisis only this time it will revolvearound the world’s third largest economy. However, many observers think that that country with a printing press cannot bankrupt, in other words – if a country is not able to pay its bills by means of tax revenue, it can print the currency in order to pay.
But according to Bass, that one begets the other which means that if a country turns to the printing press so as to avoid default, it accelerates the process of defaulting while investors claim for higher interest rates so as to purchase the bonds of a certain country.
Earlier in December Shinzo Abe was brought back as prime minister. He laid out an aggressive view on the Bank of Japan’s role and urged the central bank to adopt two per cent inflation. So far the Bank has not acted on the goal of Abe even though the market sold the yen against the U.S. dollar. This is the first prediction of Kyle Bass and the second one is much grimmer.
If Kyle is right, the inflation goal will make investors dump the Japanese government bonds on the market. Even though the bonds have long paid more or less nothing in interest, some investors succeeded in earning real returns because of the deflation in the economy of Japan.
If this happens, the interest rates of Japan will overwhelm the budget of the country. At this rate, the government will face a default or an entering into hyperinflation.
Much of the debt of Japan is held by its own people who will probably hold the government bonds out of a patriotic sense but still be reluctant to dump them.
Kyle Bass added: “You know how this ends, right? This ends through war. And I don’t know between who and who, but when you think of war, it’s just economic entropy played through its conclusion …I’m fairly certain that, within the next few years, you will see wars erupt, and not just small ones.”