Kyle Bass does the math on Japanese debt

“Last year in Japan the working age population peaked. From now on they are in an inexorable secular decline. The rubber is hitting the road there today.”

Tax revenues by definition will not meet social security and other government expenses, which cement structural deficit. Previously, the population funded large government deficits by buying low interest bonds. As the population declines retirees will become bond sellers instead of buyers. Who will buy them now, and what interest premium will they require? 200 basis points will consume all tax revenue in interest payments, not to mention retiree obligations.

That is the essential mathematics demonstrated in the Macro view of western civilization. Demographically, Japan is in the worst position of all developed nations; it has the largest debt, the lowest fertility rates, and its population is now in decline.

Here is the BBC interview with Kyle Bass:

The interview begins with a description of the short term financial crisis, but moves to the larger long term one.

And in the article, “Mirror, Mirror on the Wall, Which Nation Has the Most Debt of All?” by Dan Mitchell, he references the same BIS article as I did in my Macro view of civilization.

What is surprising is that too often articles and news coverage (what there is of it) do not make clear that the issue is not demographics; it is merely the symptom that uncovers the disease.

The disease is structuring long term liabilities on pyramid style tax revenues without investment and ROI. There are solid reasons this practice is illegal in private enterprise. And regardless of the political arguments, however legitimate or attractive, no one, including governments, can redistribute money on their way to prosperity.

It turns out you have to earn it.