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Japan's new prime minister, Naoto Kan, in his first major speech since taking office, said: "Japan is 'at risk of collapse' under its huge debt mountain."
For the past 20 years, Japan has been borrowing to keep its economy afloat. Most of Japan's bonds have been bought by Japanese citizens. Now with an aging population, Japanese citizens may not have the desire to purchase more bonds. The government would be forced to find other buyers who, most likely, would demand a higher yield.
Let's look at some of Japan's economic numbers (according to Daiwa Capital Markets):
- Japan's government debt is 200% of GDP.
- The government deficit is 8% of GDP.
- External surplus is 2.5 to 3.5 of GDP.
- Inflation is -1.5%.
- Thirty-year government bonds yield 2%.
Unlike Greece, Japan has a surplus and is a net lender to the rest of the world. Also unlike Greece, because of its surplus, Japan is not in imminent danger of collapsing. Nevertheless, Prime Minister Kan believes it is time to cut spending and rein in its budget deficits. He proposes increasing Japan's sales tax and reform measures for the entire tax system. He emphasized that Japan cannot continue issuing more bonds when its government debt is already 200% of GDP.
These proposals fly in the face of U.S. Treasury Geithner's proposals. He wants the countries with surpluses to spend more to help the world economy. Germany also has proposals to cut their debt. We might ask: Who is left standing?
Do you believe that Japan will avoid collapse?
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Reader Comments (Page 1 of 1)
6-12-2010 @ 1:54PM
Plainer said...
I doubt Japan will end up like Greece for one very good reason : Japan's economy is more diversified than Greece. Greece mainly relies on tourism, shipping and numismatic trading, mostly centered on service industries while Japan is centered on manufacturing. PM Kan is typical of a financial executive.
6-12-2010 @ 2:35PM
clipsinite said...
"Inflation is -1.5%." Don't you mean DEFLATION. It's impossible to have negative inflation.
6-13-2010 @ 9:47AM
Jerry Wimberly said...
I hope they do but capitalism just like all other forms of economys reach a critical mass at some point and a massive loss of monetary value is the only relief that will cure it. Even the world leaders know this. This is why paper (fake value) is used in trade. Only hard assets will leave you with any tageble worth!
6-13-2010 @ 9:48AM
Jerry Wimberly said...
I ment I hope they do not !
6-13-2010 @ 4:45PM
realamerican said...
The Japanese are very industrious. The Japanese do not like government handouts like Greece. Government handouts and pensions for early retiring people are one of the biggest problem Greece faces today. I as an American do not like to hand out money to people like that. Japan's surplus will keep them out of trouble if they cuts expenses now, while they have the surplus. I wish America would have a surplus, but our gov't would find a way to spend it.
6-14-2010 @ 3:16AM
joserogerr said...
Ninja reborn - Japan has the highest public debt, the only country with a higher one is Zimbabwe and no one else. When World demand goes down for Japanese products the Debt will continue to mature thus leaving it unable to pay its debts. China and the rest of Asia is waiting to take large chunks of Japans' export markets you moron.
1 month ago
Japan is the second richest nation on the planet and they still cannot clear their debts, what happens when they slip down the rankings their debt will be even more difficult to pay.
1 month ago
Christopher W doesn't see it happening, it is ok everyone Christopher W says it is alright in his infinite wisdom. Please if you are going to add something make it a bit more than comments on typos. idiot
s leaving it unable to pay its debts. China and the rest of Asia is waiting to take large chunks of Japans' export markets you moron.
1 month ago
Japan is the second richest nation on the planet and they still cannot clear their debts, what happens when they slip down the rankings their debt will be even more difficult to pay.
1 month ago
Christopher W doesn't see it happening, it is ok everyone Christopher W says it is alright in his infinite wisdom. Please if you are going to add something make it a bit more than comments on typos. idiot
6-14-2010 @ 10:33AM
Mike Sanders said...
If everyone is in so much debt, why in the world, don't we celebrate a Jubilee? Every 50 years, all debts are wiped out and then we can turn over a new leaf and begin, again. I must be missing something in the equation.
6-14-2010 @ 10:44AM
Holly said...
Numerous countries are starting to take their debt ratio more seriously after the Greece fiasco, but are they putting into action the right moves that will lead to economic stability? It is imperative that countries maintain their commitment to the stability of the banking system through judicious use of the federal safety net of deposit insurance and the discount window; support normal credit extension by banks and, more generally, smoothly functioning financial institutions and markets through stable and credible macroeconomic policies; provide adequate growth in the money supply consistent with prevailing economic circumstances worldwide; and promote open markets for the international trade of goods and services. If Japan and other troubled could follow these economic guidelines, there would be a significant less amount of debt in the world.
http://www.intellectualtakeout.org/library/progress/great-depression-101/research-analysis-reports/achieving-economic-stability-lessons-crash-1929