A slow day around the office, so I checked in at the various blogs that I follow. Somehow I got pulled to a recent video of Mike Norman lambasting the Kyle Bass thesis on Japan.
For those who don't remember Norman, he's the guy who was laughing at Peter Schiff during an interview in 2006 as Schiff warned of a housing bubble. Even though that video subsequently went viral, and he was shown to be something of a dope, he still has people paying attention to him. I guess some people never learn.
In any event, his main criticism of Bass' idea (and Norman has a way of being a real condescending gasbag in making the case) is that any country which controls its own currency, and holds all its debt in that currency, can never be in danger of default. His position is not new ground here on our little blog, but it did get me thinking about it again and why I would never invest money with this clown.
In a literal sense, he is right. But there are obviously unintended consequences. Even if the bonds can always be paid off because the central bank can print up endless currency units, the value of those currency units are likely to suffer. So, imagine you are an island nation with few natural resources, that recently shut down most of its nuclear plants because of a tsunami, what is the impact of a depreciating currency unit as you try to import the stuff you need?
Also, he tangentially makes the point that somehow Japan has been suffering through decades of deflation because of tremendous efficiencies and productivity. Really? They keep having to import more and more as the savings rate goes down and down and the debt-to-GDP level goes up and up, all in the context of troubling demographic trends. Ouchie.
