[ddeck]

Bass' thesis is basically sound. Japan is well beyond the tipping point and as he notes, JGB yields will eventually become untenable for the government. Unlike the European nations facing similar issues though, Japan prints it's own currency. As such, it will never default. Given a choice between default and monetization, monetization is always the lesser evil.

So the central bank ends up just buying all the debt that can't be sold at sustainable yields. Net result is extremely high inflation and massive Yen devaluation (i.e. >200).

Impact on the population: - poor stay poor - rich stay rich as their wealth is in real assets - middle-class get wiped out.

This is the end game and is likely a few years away yet, but there seems little chance of any other outcome.

[hudibras]

"there seems little chance of any other outcome"

Except for Japan's economy to grow faster than its debt burden, causing its debt ratio to decrease. There's a denominator in that ratio, don't forget.

[rluhar]

I think there are real structural problems that need to be overcome for the economy to grow. Debt monetization is OK - but what about a shrinking population, stagnant productivity and very low immigration levels?

Japan's economy has got a nice jump-start due to the unprecedent monetary stimulus. But, as others have commented, there are also issues are energy prices and the negative effects of inflation. Japan still remains an expensive place to do business. I wonder where the economic growth will come from without further reforms.

[pyre]

  | very low immigration levels

It doesn't help that (politically at least), Japan treats immigrants/foreign workers with distrust (even though the terrorist attacks that have happened in Japan were by Japanese nationals).

[w1ntermute]

Abe's strategy does not end with quantitative easing. The whole idea is to use it to gain legitimacy in the short term that he can then leverage to force through structural reforms.

[ddeck]

Yes, it is possible. Which is why I wrote little chance rather than no chance. Given the magnitude of the debt however, it is a very unlikely outcome.

Consider that just to achieve close to zero GDP growth over the last nearly 20 years, the government has been borrowing and spending ~10% of GDP every year. It will require an enormous amount of growth to offset even that spending, and you're still at 0%.