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The Global Debt Bomb
Forbes ^ | 1/21/2010 | Daniel Fisher

Posted on 01/21/2010 2:58:54 AM PST by bruinbirdman

Kyle Bass has bet the house against Japan--his own house, that is. The Dallas hedge fund manager (no relation to the famous Bass family of Fort Worth) is so convinced the Japanese government's profligate spending will drive the nation to the brink of default that he financed his home with a five-year loan denominated in yen, which he hopes will be cheaper to pay back than dollars. Through his hedge fund, Hayman Advisors, Bass has also bought $6 million worth of securities that will jump in value if interest rates on ten-year Japanese government bonds, currently a minuscule 1.3%, rise to something more like ten-year Treasuries in the U.S. (a recent 3.4%). A former Bear Stearns trader, Bass turned $110 million into $700 million by betting against subprime debt in 2006. "Japan is the most asymmetric opportunity I have ever seen," he says, "way better than subprime."

Bass could be wrong on Japan. The island nation (and the world's second-largest economy) has defied skeptics for so long that experienced traders call betting against it "the widowmaker." But he may be right on the bigger picture. If 2008 was the year of the subprime meltdown, 2010, he thinks, will be the year entire nations start going broke.

The world has issued so much debt in the past two years fighting the Great Recession that paying it all back is going to be hell--for Americans, along with everybody else. Taxes will have to rise around the globe, hobbling job growth and economic recovery. Traders like Bass could make a lot of money betting against sovereign debt the way they shorted subprime loans at the peak of the housing bubble.

National governments will issue an estimated $4.5 trillion in debt this year, almost triple the average for mature economies over

(Excerpt) Read more at forbes.com ...


TOPICS: Business/Economy; Crime/Corruption; Government; News/Current Events
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1 posted on 01/21/2010 2:58:54 AM PST by bruinbirdman
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To: bruinbirdman

I’ve heard rumblings that Japan is in trouble, but they are hardly alone. There’s an acronym, PIGS, for those in trouble in Europe also. Portugal, Italy, Greece and Spain. All four of these have either already had or face having credit rating downgrades.

It would be silly to think that multiple major economies can be hit with debt hurricanes and not have an impact on any sign of global recovery. We all screamed about how we can’t borrow & spend our way out of the recession, but they tried it anyway.


2 posted on 01/21/2010 3:19:43 AM PST by dajeeps
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To: dajeeps
I read the entire article.....still, no mention whatsoever of the need to bring back manufacturing to the US. The US needs to produce more of the electronics, tools, furniture, clothing, it consumes.

True wealth of a nation is based upon development of its own resources and manufacturing of internal consumable goods.

Until, that is realized and implemented,all the analyzing of the economy is incomplete.

The article also disregards any mention of the US's continuing trade deficits.

The goobermint will not allow this to occur at this time in that it will remove potential tax revenues from the forefront (them taking more in the form of taxes) because Americans will have to pay more for domestically produced consumables.

In the long run, the Goobermint will actually receive more in revenues as more Americans (and visitors) are working in manufacturing.

There's a lot of new jobs waiting for accountants, personnel managers, mid level managers, maintenance personnel, engineers, production workers, etc. when new production facilities are built and become operational.

Call it protectionist in theory, but history has shown us what made the US economy strong at one time. (1950's-1960's the most recent).

Ever increasing tax liabilities to US corporations has driven them to foreign soil not to mention virtually no import tariffs on the cheaper goods made there and shipped back here.

3 posted on 01/21/2010 4:39:20 AM PST by RSmithOpt (Liberalism: Highway to Hell)
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