"This is the key idea that Bass is missing, and why his trade is never going to pay off. For a country that borrows in its own currency, government spending finances borrowing! If Japan spends 100 billion yen on something, that's 100 billion yen out there in the world that will eventually wind up in a financial institution, where ultimately 100 billion yen worth of JGB will be purchased. It's the same with the US of course, and it's this idea that Bill Gross didn't get when he famously asked: Who will buy our debt after QE2 runs out? It caused him to get crushed on the Treasury boom of 2011."
Wow, this is wrong on so many levels. It doesn't even pass the test of intro macro course analysis. Japan has 230% debt to GDP, an aging population,and a ten year bond under 1%. Its worked so far - why worry? This is the same rationale that supported the Japan bubble of the 80s, the dotcom bubble of the 90s , and the housing bubble of the 00s.
However, as the saying goes, the market can stay irrational longer than you can stay solvent. Bass lost a lot of money on this trade in April.
"According to the website ValueWalk, citing sources, his fund lost 29% of its value in April, and has really been getting clobbered since inception. We haven't been able to confirm the losses (Update: Now confirmed), "