Rising Debt a Threat to Japanese Economy

[pampango]

Source: New York Times

How much debt can an industrialized country carry before the nation’s economy and its currency bow, then break? The question looms large in the United States, as a surging budget deficit pushes government debt to nearly 98 percent of the gross domestic product. But it looms even larger in Japan.

Here, years of stimulus spending on expensive dams and roads have inflated the country’s gross public debt to twice the size of its $5 trillion economy — by far the highest debt-to-G.D.P. ratio in recent memory.

Just paying the interest on its debt consumed a fifth of Japan’s budget for 2008, compared with debt payments that compose about a tenth of the United States budget Still, officials insist that Japan is better off than the United States by some measures.

One hugely important difference is that Japan is rich in personal savings and assets, and owes less than 10 percent of its debt to foreigners. By comparison, about 46 percent of America’s debt is held overseas by countries such as China and Japan.

For all the recent talk of a shift away from the dollar as the reserve currency of choice, it is the yen that is becoming increasingly irrelevant, analysts say. The yen made up 3.08 percent of foreign currency reserves in mid-2009, down from 3.29 percent the same time last year and down from 6.4 percent in 1999. In mid-2009, the dollar still accounted for almost 63 percent of global foreign reserves.

.

Read more: http://www.nytimes.com/2009/10/21/business/global/21yen.html?partner=rss&emc=rss

---

Hadn't realized that Japan's public debt was twice the size of ours relative to the size of our economies. Guess it's a testament to their domestic savings habit that they owe 90% of their debt to themselves plus they hold 21% ($725 billion) of US' public debt second only to China at 23% ($800 billion). Even though Japan's government borrows at twice the rate ours does, there are enough domestic savings to fund 90% of that borrowing and 21% our ours as well.

Wonder why the Japanese don't just increase taxes? Their government borrows more than it takes in in taxes, but borrows 90% of it from its own people.

[tomm2thumbs]

1. kick

[excess_3]

2. >why ..don't just increase taxes< deflation

Japan has to worry about possible deflation,
which would be a disaster

[pampango]

3. Wouldn't the reduced borrowing cancel the effect of increased taxes re. deflation?

The reduced borrowing would free up some savings that had gone to finance the deficit and could be used in the real economy. (Though increased taxes would probably reduce the savings rate somewhat. You pay more in taxes, you have less to save.)

[excess_3]

4. ???, if you increase gov't revenue with higher taxes,

all else being equal,
you can reduce borrowing

[pampango]

5. I thought you meant that higher taxes would lower consumer spending leading to deflation.

My question was whether the reduced need for the government to borrow, if it had more revenue from taxes, would free up some of the domestic savings that the government currently has to borrow. This freeing up of savings to possibly be used for increased consumer spending might offset the deflationary potential of increased taxes.

[unhappycamper]

6. I suspect this is the reason for the pushback on the military payments they are

making to the US.

[pampango]

7. I must have missed that. Do they help pay for our military presence there? I assumed we paid

the whole cost ourselves.

[rpannier]

8. Korea and Japan cover a significant amount of the cost

Here in Korea it's about 60%
Japan is probably comparable.

[pampango]

9. Thank for the info. n/t

[closeupready]

10. US debt as a percentage of GNP is bad but not even in the top 10 worst.

I believe Italy is worst - I'd have to find the survey.

Here we go:

http://en.wikipedia.org/wiki/List_of_countries_by_public_debt

We're like 28 or so.