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Could Japan’s Debt Lead to a Crisis?

ao333

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Who would save Japan in a sovereign debt crisis? Ideally, it won’t have one. But given the country’s terrifying challenges, some senior Japanese financial executives and government bureaucrats are quietly considering a doomsday situation. In a theoretical credit collapse, even China could come to the rescue.

True, Japan looks incredibly unlikely to default on its debt. Ten-year government bond yields of around 1.1 percent reflect not an iota of concern among investors. And as one of the world’s great creditor nations, Japan has vast resources, hard-working people and, if need be, a central bank that could fire up printing presses.

But the numbers are frightening, especially given Japan’s lack of political leadership around fiscal issues. Government debt stands at about 1,000 trillion yen ($12 trillion), with gross borrowings of around 200 percent of gross domestic product. The productive means to pay off those liabilities are shrinking as Japan’s average age creeps toward 50. Thanks to scant immigration, the country also loses one million people a year.

Japan can finance itself for now; 95 percent of government debt is held domestically. But the combination of aging workers, a lack of new household formation and bank deposit growth, and corporations opting to deploy cash overseas have some economists predicting that, without drastic reforms, Japan may soon need to look abroad for financing.

That could lead to a crisis. If non-Japanese creditors demanded higher yields to compensate for low growth, the country’s dependence on short-term borrowing would quickly lead to spiraling debt service costs. Even a 5 percent haircut on government debt would equate to $600 billion.

Few have pockets that deep. Europe’s resources are tapped out on its problems. America is struggling, and would be even more so if Japan dumped the almost $1 trillion in United States Treasuries that it holds. The only sizable pool of capital available would probably be Chinese.

China might be willing to help out. But the money could also come with strings. Sovereignty over disputed oil-rich islands is one possibility. Some theorize China may demand independence for Okinawa, home to controversial American military bases. Perhaps that’s the best reason for Japan to get its house in order: a Chinese rescue might be as uncomfortable as the debt crisis itself.

http://www.nytimes.com/2011/05/27/business/27views.html?ref=china

Bolded > LOL
 
lol at Japanese accepting Chinese bailout. The whole nation might just as well commit seppuku.

as an aside, this is the independent Okinawan state they were talking about

Ryūkyū Kingdom
 
Most of their debts are internal debts, so that should alleviate alot of the problems. The fact that average Japanese saves quite a bit of money also helps to stabilize the economy. However, they need to set their spending straight or they might hit the wall soon.

It is my sincere opinion that governments should not be allowed to run on deficits, except during times of war. I wish Canadian constitution mandates governments must keep a balanced budget.
 
Most of their debts are internal debts, so that should alleviate alot of the problems. The fact that average Japanese saves quite a bit of money also helps to stabilize the economy. However, they need to set their spending straight or they might hit the wall soon.

It is my sincere opinion that governments should not be allowed to run on deficits, except during times of war. I wish Canadian constitution mandates governments must keep a balanced budget.

Don't tell me you want European style austerity packages?
 
Don't tell me you want European style austerity packages?
You do know those "austerity" measures had to be taken after governments around Europe went on a spending spree right? If they had bothered to balance their budget, it would never have happened in the first place. Run up a debt = cutting back in luxury.

I don't want to leave my children the burden of public debt.
 
You do know those "austerity" measures had to be taken after governments around Europe went on a spending spree right? If they had bothered to balance their budget, it would never have happened in the first place. Run up a debt = cutting back in luxury.

I don't want to leave my children the burden of public debt.

I know what Europe did and why they're doing it, I'm saying Canada doesn't need one. Hence "European style"
 
Japan's economy is also shrinking.

BBC News - Japan back in recession as earthquake cuts consumption

Japan has the highest percentage of public debt in the world, but luckily for them, most of that debt is internal rather than external. Still, a very bad place to be when you don't have any GDP growth.

America has the most external debt ($14.32 trillion), but at least their economy is growing.
 
I know what Europe did and why they're doing it, I'm saying Canada doesn't need one. Hence "European style"
We're not as deep in sh-i-t as the Europeans, but we're still running up a deficit. Say what you want about Jean Chretian and Paul Martin, but they did a fantastic job of reducing our national debt. When Brian Mulrony was the PM, 30 cents of every tax dollar in Canada went to pay for interest of our debt. Now Harper's government is doing the same sh-i-t to us.
 
We're not as deep in sh-i-t as the Europeans, but we're still running up a deficit. Say what you want about Jean Chretian and Paul Martin, but they did a fantastic job of reducing our national debt. When Brian Mulrony was the PM, 30 cents of every tax dollar in Canada went to pay for interest of our debt. Now Harper's government is doing the same sh-i-t to us.

Can't really say I'm against living within our means but we're going to have to live with that asshole for a couple of years. What I am kind of weary of is a polarization of Canadian politics along the lines of the US, with no effective centre party. Iggy bless his heart just about killed the Liberals.
 
i'm not so sure china will bail out japan. i think it's more likely for china to leave japan to the IMF.
 
i'm not so sure china will bail out japan. i think it's more likely for china to leave japan to the IMF.

I don't think a fund which spends at the curtesy of its stakeholders can bail out any of the top 20 economies in the world.
 
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