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Better than I could say it:

November 3, 2014

My writing concentrates on the problems I see with the fiscal and monetary policy decisions being made these days. It is understandable that readers want to know what it will mean to them directly. I really hate to tell readers exactly what it will mean or what they need to do to protect themselves. So the solution is to find someone who can say it better than me. Kyle Bass is a professional investor who correctly predicted the real estate bust and made a lot of money being on the right side of that economic event.

I have listened to Bass over the years and I recalled he was very bearish on Japan, so I went back and looked at an old interview (2013). I have noted many times that if anyone is concerned about central banks’ monetary policies around the world, pay close attention to what goes on in Japan because of all the grand monetary experiments we are in, Japan’s is the grandest! Overnight the Nikkei was up 755 points on news that the Bank of Japan would be doing another massive bond purchasing program (Quantitative Easing or QE). The Japan state pension system announced at the same time that they would dramatically shift more of their funds into equities. The yen has been collapsing, but obviously their stock market is celebrating and driving other European markets higher. If I lived in Japan I would want to be invested in anything but their native currency.

Anyway, the following interview is actually pretty good and in my opinion is exactly what we can expect will eventually happen around the world, including in the U.S. Sorry, but it is about 10 minutes long. The central banks and financial media are echoing concerns about fighting deflation, but if you really want to know how their policies will affect all of us, plan on the collapse of currencies — hence inflation. But that is only a guess. The better litmus test is to watch what happens in Japan. When their currency collapses even further than it has, watch the pundits justify why we won’t see the same here. As Bass points out in the following interview, it will all take time to work itself out, but there is no way out for Japan. They have dug too deep of a hole!

Here’s the bottom line: Is it possible that we experience deflation? Yes, it is possible, although I think central banks will always err on the side of way too much easing — and they already have. There is a chance that the central banks admit their policies do not work, albeit not quite so candid as that. And then our economies will have to deal with deflationary pressures, all the while having the added weight of excess liquidity. My final bet is that Bass is right. I hope that clears things up!


One Comment
  1. Robert Cameron permalink
    November 3, 2014 4:55 pm

    So, I guess when I am scrabbling for my crusts of bread in the ruined economy while the oligarchs laugh from their beachfront verandas I won’t be alone?

    Actually, having grown up dirt poor, I will have an advantage, since I already know how to do that. My wife gets irritated at me when I tell her, I can live with next to nothing. But I did it once and I can again.

    Others, too entitled not so much once they learn that what they think they have is an illusion and the $600,000 house they bought is really only worth the $100,000 thousand they can sell it for.

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