December 31st, 2012
In 2006, when Americans were flying high on ever-expanding credit and double digit real estate growth, hedge fund manager Kyle Bass came to the conclusion that something was very wrong. He and his investors determined that a massive real estate bubble was forming in sub-prime mortgages. But rather than just making a prediction, they put their money where their mouth was, and took a $4 billion gamble that the real estate market was about to detonate.
At the time, many in the industry and within financial circles thought him crazy.
History, however, proves he was right.
When the real estate bubble did finally burst, stock markets plummeted and mortgage backed securities fell to pennies on the dollar. Bass and his hedge fund made billions in the process.
Bass’ foresight was 20/20, and now he has issued a warning so dire that it, like the real estate crisis and recession that followed, is unimaginable for most Americans.
In many of these situations the quantitative analysis is already done. It’s just a question of when will this unravel and how will it unravel, which I think is the key when we’re thinking about the chronology of events and the likelihood of events going forward.
Something that I think is really important to pay attention to, in the last 10 years debts around the world – this is total credit market debts, this is on balance sheets, sovereign obligations, corporate debt, household debt – has grown from $80 trillion to just over $200 trillion.
We sit today at the world’s largest peacetime accumulation of debt in world history…
…You know how this ends right?
This ends through war…
…I don’t know who’s going to fight who, but I’m fairly certain in the next few years you will see wars erupt, and not just small ones…
You’re going to see more social unrest.
You saw HUGE riots in Greece, and you’re seeing HUGE riots in other parts of the world over food (and lack of food) and those are actually derivatives of the financial problems that we’re seeing. We’re exporting inflation to some other nations. Going forward it’s going to be a problem.
They’re not going to tell you [that a collapse is coming]. You’re going to have to see it for yourself. [During the Tequila crisis], the Mexican government affirmed they would not default, that they would not devalue, almost daily. The day after they said “we wont devalue,” they devalued by 60%.
The government’s never going to tell you that it’s going to happen.
Greece’s Yunker said recently, ‘When it becomes serious—you have to lie’. These guys are never going to tell you the truth, because they can’t tell you the truth. Their job is to promote confidence, not to tell you the truth.
Watch Kyle Bass:
Full Speech at the AmerCatalyst 2012 Conference (Approx 1 hour)
The United States, Europe and the rest of the world have created more debt than has ever existed in the history of the world. Debt is nothing more than a representation (and expectation) of future earnings – future work. But, as many of us know, there has been so much money borrowed that we can’t possible every expect to pay it back. In fact, the only thing we can expect is that we will continue to take on even more debt.
At some point in the (near) future, the plug is going to be pulled and no one is going to lend anyone any more money. We saw this on a small scale in 2008 when credit markets around the world froze up. No one was lending money. There was so much risk that banks not only refused to lend money to individuals and businesses, but they refused to even lend each other money.
Central banks around the world, namely the U.S. Federal Reserve, calmed financial markets by pumping out trillions of dollars in emergency lending. This gave many a perception that things were returning to normal, but as Kyle Bass points out, we are in anything but a normal situation.
Debt has sky rocketed and we’re not going to pay it back – ever.
Like the mafia does when debts don’t get paid, our creditors are eventually going to resort to ‘breaking some legs.’
But we’re talking about debts of entire sovereign nations here, so the tools used to ‘take care of it’ won’t be crowbars or baseball bats, but rather, soldiers, tanks and intercontinental ballistic missiles.
War is coming – just as it has throughout history.
And the 99% of Americans who believe in a benevolent, all knowing, all caring government will be the last ones to get the memo.
Ignore the warnings at your peril.