So I was researching our national debt with respect to the GDP and I was surprised to see there are many other countries whose governments are wreckless spenders as well. The most notable one was Japan with a national debt 220% of its yearly GDP. Can anyone explain this? I always found it ironic that so many Japanese companies were able to topple their american parts. Could it be that the Japanese government subsidizes everything to make their products more competitive on the international market?
The Japanese economy has been in recession for a very long time now.
Anyway. the success of their business enterprises doesn’t stop the government from racking up lots of debt.
Japan’s economic crisis in the 1990s was blamed on an epidemic of insolvent companies which were propped up by banks, which were in turn propped up by the government (colorfully known as Zombie Companies and Zombie Banks). I don’t know to what extent this is still a problem.
The high level of debt has nothing to do with their international competitiveness. Back when they were buying up Rockefeller Center, etc., they had much less debt. It’s ballooned in recent decades because of their economic downturn and the increasing ageing of the population.
Japan can handle such a high amount of debt because it’s almost entirely held by Japanese creditors.
What he means by this, is that the cost to Japan to fund its national debt is extremely low, because they have a bunch of willing domestic buyers. For example, at one point in late 2012, the yield on benchmark 10yr JGBs was 0.72%. For the past 10 years it’s averaged around 1.3%.
Domestic investors (banks, trust banks, pensions, insurance co’s, etc) hold approx. 85-90% of all outstanding JGBs, and for at least the last 15-20 years, JGB bond yields have remained ridiculously low despite the high debt/gdp ratio, a rapidly aging population, poor tax revenue outlook for the government. One major factor is entrenched deflationary pressure over the past 15 years or so: equity markets get hammered during periods of deflation, while fixed income products (like JGBs) are relatively more attractive. Think about it - a product that offers a guaranteed $1,000 per year while $1,000 each year is worth *more *than the year prior…that’s an attractive investment.
There are signs this might be changing, btw. Japans’ major banks have been slowly selling off JGBs as the government attempts to spur inflation (and thus lending).
The Japanese Government is also very fond of funding public projects, some of them quite useless. There are more than a few arguments to wether it was wasteful or saved Japan from a serious recession in the 90’s.
Slightly out-dated - the last of the pork barrel, construction-heavy public works spending budgets was in the late 90s’; the Koizumi administration slashed spending on public works projects, and by 2012 spending was less than a half of the late 90s level.
Abenomics, of course, is essentially a promise to return to more ‘infrastructure spending’ (i.e., construction-related projects), although part of this will also go to post-quake rebuilding work in Tohoku.
Percentage-wise it is still very high compared to US spending. On the other hand the Japanese infrastructure is much more solid. I don’t hear of Japanese bridges collapsing without an earthquake being involved.