Japan's Imminent Economic Seppuku Will Unleash a Financial Tsunami upon the World

In the coming days our new contributor will be writing about the crisis in Japan. As a precursor to this you should do yourself a favour and check out this recent talk given by Kyle Bass. His company is Hayman Capital Management. He successfully predicted and benefitted from the subprime mortgage crisis by purchasing credit default swaps on subprime securities issued by various investment banks (similar to shorting the bonds). Bass has since continued to attract media attention for his prediction of the European sovereign-debt crisis and his expectations regarding Japan's economic future.

Kyle's blog can be found HERE. The blog has most of the transcript from the speech which is similar to one I've heard him give before, but the different audience questions give new insights.
If I had a spare $5 million to invest i'd definitely give it to this guy ($5 million is his minimum client).

Basically it boils down to this, Japan is in 1 Quadrillion dollars in debt and is barely able to finance the interest on this debt. Japan has only downsides at the moment because it has a shrinking & ageing population, they import way more then they export, and China is making life difficult for them by boycotting trade. Prime Minister Shinzo Abe and their central bank have decided to print money to stamp out deflation in the hopes of creating growth.

The massive risk (which is not so much a risk as a fact) is that if they do in fact achieve growth and subsequently have to raise interest rates (even fractionally), they will be unable to fund paying the interest on their massive debts. In this situation investors will flee and Japan will have a sovereign debt crisis. Japan is the 3rd largest economy in the world and this will unleash an economic tsunami on the rest of the world, creating even greater stress on a fragile Euro and US economies.

Oh and by the way, Japan has had 10 finance ministers in the past 5 years, a rate of change that hasn't been seen since the fallout from WW2. To give you an idea about how bad the situation is look at this article headline from the end of last year  "Japan's Finance Minister Commits Suicide on SuicidePrevention Day"

Or what about this headline about their Brand New Finance Minister "Japan's finance minister tells elderly they should 'hurry up and die' to help reduce country's rising welfare bill"

Anyhow, I thoroughly recommend you watch (or even just listen to) the video and lookup Kyle Bass on Youtube for some great information. Below is a different video of Kyle Bass on youtube it is similar to the one above. You don't get 100,000 hits on youtube for a 1 hour video on economics unless its getting passed around for a reason!

I tried to embed the video but blogspot wouldn't allow me to post it so just click on the link below

http://www.youtube.com/watch?v=JUc8-GUC1hY