Wednesday, October 24, 2012

Japan's Incredible Sovereign Debt Problem

The chart below shows global sovereign debt as a percentage of total government revenues. As can be seen, Japan's debt is far more out of control than that of any other country.

Japan has been able to issue so much debt because of the great propensity for the Japanese to save. However, as Japan's population ages, many of those savers are entering retirement where they are going to be liquidators of Japanese debt rather than adding to positions. No way Japan gets out of this without default, unless the Bank of Japan money starts massive printing that props up the sovereign debt. Such money printing will, of course, result in massive Japanese price inflation.

On another note, Japan's "Lost Decade" was made worse by this debt. Instead of money saved by the Japanese going into private sector investments that would have boosted the productivity of the country, it went into the the government sector where it was spent on wasteful crony government projects.
(Chart via Zero Hedge)


  1. I've always been astounded that Japan has managed to keep it together despite such a large debt to GDP ratio.

    I've been worried that maybe the U.S. could do the same and extend the economic misery for decades....

    I suppose if nothing else there's an argument here to be made that if the US gets desperate enough they will go after afterone's 401K's to do a "Japan".

  2. Move over PIIGS, Japan is #1 and the US is #3 behind Greece. If that isn't writing on the wall, I don't know what is.

  3. All these numbers are so unreliable though. If you've ever dealt with a government agency, they can't add 2+2. They're just going to print as long as they can.

  4. In my opinion, massive money printing is a form of default. Whatever route is taken, there are going to be millions of very unhappy victims. This won't end well for Japan or the rest of the First World economies.

  5. Finally a graph that shows a better picture, rather than comparing debt to the flawed GDP measure.

    Next step would be to look at Primary Budget Deficit(Surplus) divided by Gov't revenues.

    You will all be shocked how ugly Japan and U.S. look compared to EU and even the PIIGS.