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Moody's cuts Japan debt rating by one notch to Aa3

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Well, hopefully that will get the gears in motion -- that's usually what it takes here... international pressure.

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Geewiz..........this is not good at all.

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Luckily I am poor, and have no savings, so I don't need to care about such doomful news.

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This is a staged act through orchestrated by MOF to give more steam through external pressure concerning the consumption tax hike up debate.

It's sad that MOF can't come to terms to cut funds to downsize the overgrown bureaucratic organization which uses 1/3 of the annual budget just to maintain it. All ministries need to do what all private companies do re-structure and streamline the organization.

-3 ( +0 / -3 )

Inflation we need you in Japan-come back all is forgiven...

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Who are these Moodys, S&P guys that lately seem to have the right to rate the world??

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Japan’s debt stands at around 200% of its GDP, after years of pump-priming measures by governments trying in vain to arrest the economy’s long decline.

A rapidly aging population, entrenched deflation and a feeble economy have made it hard for lawmakers to curb borrowing.

Japan is set to issue more bonds later this year to help finance reconstruction from the March disaster.

Pretty much the perfect storm for government finances -- too much debt; shrinking economy; and now a need to borrow more. Anyone who doesn't believe Japan's best days economically are behind it is obviously not looking at the same data the ratings agencies are. Decline is the operative word, with the only issue being how steep/fast?

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It's sad that MOF can't come to terms to cut funds to downsize the overgrown bureaucratic organization which uses 1/3 of the annual budget just to maintain it. All ministries need to do what all private companies do re-structure and streamline the organization.

@SamuraiBlue, are you guys still trying to do a "Shiwake" to cut the budget of bureaucratic entity of Japan? I hope so. It needs to be cut drastically. Or they all have to take a 20% paycut regardless. Also, you guys have too many non performing politicians at all levels of government. I was told when I was in Japan that the Nerima distric of Tokyo alone has been carrying 57 municipal politicians who are getting paid well over Y10,000,000 annual salary. Some of them are non performers. This budget cut has to be strongly addressed to all bureucrats before increasing a consumption tax. FYI, the corporate tax for J. business is the highest in the world.

Pray for Japan

1 ( +2 / -1 )

This appears to be a non-event, at least so far. The yen is about where it was, as is the Nikkei. We'll see if anything happens when the European and US markets open, but at this point there is no apparent effect.

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I believe that Japan will eventually default on its debts: raising taxes won't be effective when the workforce is shrinking and salaries are being cut. Bureaucrats have had several years of salary and bonus cuts, but what is needed is a cut in their numbers, and an end to corruption and waste. None of this will happen until it's too late.

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@Farmboy, ahh...........I am crossing my fingers. Thank you for telling me.

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Alot of this has to do with the nuclear crisis in Japan.

http://www.youtube.com/watch?v=bkZbWpw8r_I

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I believe that Japan will eventually default on its debts

@Scrote, I think so too. The 90% of Japanese debt is carried by Japanese citizens. So what will J. Gov do? They just wash their hands and say, "GOMENNASAI YURUSHITE KUDASAI." All savings become worthless at once.

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The problem with Japan's economy is that it is in deflation. The last thing that needs to be done at a time like this is raising taxes and cutting costs! What the government needs to do is to increase investment in public works to stimulate the economy. And really there is a lot that the government needs to spend on, what with the 3.11 quake. Roads need to be rebuilt, buildings need to be rebuilt, earthquake-proofing measures need to be implemented, safer nuclear technology needs to be developed, etc. etc. As the finance minister himself said, Japanese bonds sales show confidence remains "unshaken", and that's understandable, Japan being the world's biggest creditor nation for 20 years straight. Japan's debt -- unlike that of Greece, etc. -- is 95% owned by Japanese themselves. With all the savings piled up in Japanese banks, Japan can issue another 100 trillion in bonds and still be far from defaulting. Japan should have more confidence in the strength of its economic fundamentals.

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The ratings agencies have power that isn't in line with their competence, integrity or level of accountability. They make money from the same companies they give ratings to - it's a total conflict of interest - but not enough money to hire the best people.

This is a good article on it I came across this morning. http://www.guardian.co.uk/business/2011/aug/22/ratings-agencies-conflict-of-interest

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Here's another one on how poor they are at predicting sovereign default

http://professional.wsj.com/article/SB10001424053111904823804576502481646797782.html?mod=WSJ_hp_LEFTTopStories&mg=reno-wsj

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Illogically this will make the Yen Stronger.

-1 ( +0 / -1 )

Japan needs to devalue the currency and encourage inflation. This is the historically route out of debt and the only long term solution.

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globalwatcherAug. 24, 2011 - 10:39AM JST Or they all have to take a 20% paycut regardless. Also, you guys have too many non performing politicians at all levels of government. I was told when I was in Japan that the Nerima distric of Tokyo alone has been carrying 57 municipal politicians who are getting paid well over Y10,000,000 annual salary. Some of them are non performers. This budget cut has to be strongly addressed to all bureucrats before increasing a consumption tax.

I heard of an interesting analogy that the government deciding on cutting back the numbers of seats in any government is like conducting an open heart surgery upon yourself. I guess it is the same with cutting back on salary as well. LOL

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Soon there will be nobody left with AAA rating, except Norway.

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I have a novel idea:

What if some of these down-rated countries started making some money ( and I don't mean printing it) instead of borrowing?

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Government spending is around 38% of GDP. Cutting on government spending will lead to negative GDP growth, obviously, and only aggravate Japan's deflationary spiral. Again let's not talk about cost-cutting and increasing taxes in a time of deflation. Now is also not the time to be firing government employees. If anything, Japan should be hiring more government employees, as Japan still has fewer government employees as a percentage of the population, compared with the other advanced nations, e.g. Japan has 18 government employees per 1,000 people, in contrast to Germany's 35 per 1,000 or the US' 22 per 1,000 (2005 figures).

-1 ( +0 / -1 )

Now is also not the time to be firing government employees. If anything, Japan should be hiring more government employees

I agree with you here, but I also think that the government need to start to govern what all those employees (mainly the bureaucrats) are up to.

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Moody's downgrades governments' bond ratings depending on their mood.

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Moody's downgrades governments' bond ratings depending on their mood.

And S&P's standards are poor. Ba-boom

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The debt is not sustainable over the long term because the savings rate decreased dramatically over the last decade and might even become negative in the near future. The population get older and taps into their savings. Younger families cannot afford to save more than a few percent of their income (while it used to be up to 20% during bubble years). This indicates that inevitably, the demand for Japanese bonds will start decreasing (unless the obedient local banks keep buying en masse under pressure from the government) and rates will start rising... which would be a disaster because the debt service would rise to impossible levels.

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Local banks are more than willing to buy government bonds because they've no one else to lend the money to. At any rate, for now the government can still afford to increase public debt and public spending, and it has to since the economy is in deflation and supply capacity greatly exceeds demand and there is still too much money doing nothing in the banks. As the economy is stimulated through public works investment tax income will also increase and then the government can think about raising taxes and balancing the budget. In fact, Japan can also just decide to print money instead of incurring more debt. By doing so it can fund recovery from 3.11, stimulate the economy, increase government revenue, pay off the public debt, and achieve a reasonable amount of inflation which Japan needs right now to get out of this deflationary spiral.

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SquidBert:

" What if some of these down-rated countries started making some money ( and I don't mean printing it) instead of borrowing? "

Sure, but politicians don´t like that.

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Japan, being a natural disaster-prone country, needs to have an "excess" of everything -- production capacity, infrastructure, services, government employees, etc. -- just in case 30-meter tsunamis wash away the entire east coast, including your local city office; "excess" employees in Kyushu, for instance, can go to Tohoku to help out, etc...

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@JesusLovesJapan

What world are you living in?

"As the economy is stimulated through public works": for 20 years, Japan has seen the biggest and longest ever stimulus program. Billions and billions of money poured by the government. And guess what? It did not work at all. The ideological keynesianism of the last 20 years is fully responsible for the crisis we are living now, and yet these people are asking for ever more public investment? Blinds leading blinds...

"At any rate, for now the government can still afford to increase public debt and public spending": at the current low rates, maybe, but definitely not if the rates rise

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By doing so it can fund recovery from 3.11, stimulate the economy, increase government revenue, pay off the public debt, and achieve a reasonable amount of inflation

"excess" employees in Kyushu, for instance, can go to Tohoku to help out

JesusLovesJapan is daydreaming.

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Except for a brief spike during the Hanshin Earthquake, Japan's public works spending has been decreasing, and today it is lower than it was 30 years ago, not even half of what it was during its peak! It's because government stimulus programs are half-baked that the economy hasn't gotten out of its deflationary spiral. It's about time the government started spending more, especially that roads and other infrastructure built 50 years ago are in need of renewal. Else you'll get falling bridges and roads full of potholes, as you sometimes hear of happening in other "advanced" countries. And let me repeat, the Great East Japan Earthquake calls for even more public works spending to rebuild roads, bridges, buildings, power plants, schools, government offices, etc. I'm not daydreaming at all. What we need is not an ideological, but a pragmatic approach to economic policy -- if the situation calls for "Keynesianism", then so be it. If the situation calls for austerity, then so be it...

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Start the "JAWS" theme music....da dum...da dum....

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Japan needs severe reform- employment for starters Someone to kick butt. Government spending signals to Japanese individuals and companies to cut back spending as the country is in dire trouble and the central government has no intention of fixing the malaise so save save save to cover yourself for the crunch and the country slips backwards.

Moody cut in credit rating makes no difference as most government debt is internal.

Rebuilding most of the disaster areas won't do any good- most were in economic malaise before and will be a drag afterwoods. Some isolated areas with economic value need fixing now like the fishing villages.

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No. The problem with Japan is deflation and deflation and deflation. Supply capacity greatly exceeds demand. What Japan needs now is more demand. If the private sector can't stir up enough demand, then it's the government's responsibility to do so. That's one of the roles of government (contrary to what some ideologues will have you believe)! Private investment, private consumption, public spending, all go into GDP. If the government cuts back on spending -- an anti-inflationary measure -- then that merely lowers GDP even more and gets the country even more into deflation.

-1 ( +0 / -1 )

Oh, but Japan is such a rich country! Ha, bloody ha!

JesuslovesJapan - The problem is, Japan's economy was built on the backs of scab labor and unpaid work with a post war population, of which, nearly 50% were under 30 years old at the end of WW2. Now, that generation is gone and the money is sitting in private safes across the country. Knowing this, it is pretty easy to understand why the economy has failed miserably over the last two decades and it is only gonna get worse.

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Sorry you're disillusioned, but during the period of economic growth in the 60s it was explicit national policy to double everyone's income and enlarge the middle class, which is why Japan now has a large middle class, and so is very low on the global income inequality list put out by the UN. There may be lots of money sitting in private safes, but there's also lots of many at the local banks, which are at a loss as to what to do with all those savings, there not being enough borrowers to lend to, and so the banks are more than willing to buy government bonds, and the confidence in government bonds will stay firm, Moody's or no Moody's, Japan being the worlds biggest creditor nation for 20 years straight. As for "government debt", again almost all of that is owed by the Japanese government to Japanese themselves, and so Japan will not go the way of Greece and other countries who borrow heavily from other countries...

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there not being enough borrowers to lend to, and so the banks are more than willing to buy government bonds,

JLJ -- but that is the exact problem. Because Japan is so bureaucratic and companies are burdened with tons of un-necessary regulations and ridiculous taxes, there is no investment taking place to stimulate growth in the economy through the private sector. Especially in small firms/start-ups. So, the money goes, as you say, to government bonds, which turns into more wasteful spending. That is not a prescription for prosperity. So, while you may be right, Japan may not follow greece down the near-default road, they are certainly not laying the groundwork for growth either. So, respectfully, Moody's is right -- the long-term prospects for the economy are not good.

-1 ( +0 / -1 )

Government spending sometimes is wasteful (as is private spending) but it is also necessary. Again, for instance, a lot of tunnels, buildings and other aging infrastructure built during the growth period of the 60s are in need of repair. It was reported in the news today that many elementary school buildings were built to withstand only up to a "shindo-6" earthquake and so need to be reinforced, and so on and so forth. It's a caricature to say that Japan's regulations are what inhibit private sector growth, as the government and the private sector have worked together to build one of the top three largest economies in the world all these years. Deflation is caused by, among other things, pessimism on the part of the private sector because of -- deflation! (and dire warnings in the media that Japan's economy is in trouble, that Japan could go the way of Greece, etc.) It's a vicious cycle, and it's time for the government to do its part. Build roads, tunnels, bridgets, earthquake-proof buildings, etc. and stimulate the economy. Then we'll see more consumption and investment in the private sector as the "mood" gets more "upbeat" and Japanese are encouraged to spend more of their enormous savings. Having said that, Japan's private sector is not "weak" at all. Japan has a trade surplus with both China (if you count in the trade that goes into China from Japan via Hong Kong and Taiwan) and Korea, who import capital goods and materials from Japan for use in producing cheap goods for export to the US, Europe, etc. As China and Korea export more and more, Japan benefits. There are 40 or so nuclear reactors under construction in the world and while Japanese, US, Russian, French, etc. companies are involved in these projects, they all need to order the "containment unit" for the reactor from a certain company in Hokkaido which alone can manufacture them. The world's larget aquarium now is in Dubai, it seems, but the acrylic panel used to build it is made in Japan, which alone has the technology required. And so on and so forth. China should have ordered its bullet train system from Japan...

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Government spending sometimes is wasteful (as is private spending) but it is also necessary. Again, for instance, a lot of tunnels, buildings and other aging infrastructure built during the growth period of the 60s are in need of repair.

JLJ -- nonsense. Government spending to support growth/add infastructure, like in the 60's, is healthy. But government spending just to keep a false level of employment is not. Japan already has too high a percentage of people employed by government/government projects. Massive structural reform is needed, like Moody's and others say, not continuin decades of wasteful spending.

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Japan has fewer government employees in relation to the entire population than other advanced countries. Infrastructure doesn't last forever (50 years is a common estimate; in a few years' time we'll see bridges collapse if the government doesn't invest now in their maintenance)...

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JLJ -- nice try, but we both know that is a bogus number in Japan's case. First off, the percentage of people in Japan employed by government-related/funded organizations is much higher than the other advanced countries. Second, the percentage of workers, mainly construction, employed in government-funded public-works projects is also much higher. Respectfully, when you add all three up, the percentage of GDP going into direct government and government-related employment in Japan is much higher. You need to think beyond just the Japan Times article you keep borrowing from.

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First off, the percentage of people in Japan employed by government-related/funded organizations is much higher than the other advanced countries.

Evidence please.

According to this, Japan is the one of the lowest among "advanced countries"

http://business.nikkeibp.co.jp/article/manage/20110708/221373/

Second, the percentage of workers, mainly construction, employed in government-funded public-works projects is also much higher

Evidence please.

Respectfully, when you add all three up, the percentage of GDP going into direct government and government-related employment in Japan is much higher.

http://en.wikipedia.org/wiki/Government_spending#Government_spending_as_a_percentage_of_GDP

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what is truely sad is that this Japanese downgrade hardly made it to any international news. Simply put, Japan seems to have lost her relevancy in international market.

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what is truely sad is that this Japanese downgrade hardly made it to any international news. Simply put, Japan seems to have lost her relevancy in international market.

@Oberst, it is a machigai desu.

It has been reported in US. If Japan falls, everything else will. Japan is a key player in global market. Every investor is watching every single move what BOJ and Japan are planning to do.

0 ( +0 / -0 )

Get rid of fat rats bureaucrats non performers before a consumption tax increase. They have been a free rider of Japanese prosperit yand laughing to the bank with your tax money. Do not let them convince you that you are doing your own surgery. Non productive performers have to GO to cut waste.

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@Global, my statement of japan's relevancy is mainly directed at her down grade. I understand Japan plays a key role in the supply chain...............

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What is irrelevant is Moody's downgrade itself. The Finance Minister himself simply brushed off the news of the downgrade. Over 90% of Japanese government bonds are held by Japanese, and they don't really care what Moody's says. They will continue to hold on to and to buy government bonds.

-1 ( +0 / -1 )

It is a common mistake to believe that Japanese people still have a lot of savings. It used to be true until the end of bubble years. But during the last 20 years, the savings rate decreased dramatically (you can check on the internet) and reached the same level than the savings rate of American people. The savings rate is only a few percent now and might become negative in a few years: the huge savings are getting used by an increasingly old population for covering life expenses (retirement plans are quite low). In addition, younger generations cannot afford anymore to save as much as their parents did. Combined with a sharp increase in social spending, this does not sounds good for the long term sustainability of the debt.

Those people who pretend that Japan can keep increasing the debt level are delusional. One day or another, rates will climb and partial default will not be impossible anymore.

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The belief that "Japanese people still have a lot of savings" is not wishful thinking, but simple fact. While it is true that the savings rate has been decreasing lately (though it went back up somewhat this year), there is still some 1,400 trillion yen of savings, a little over half of which is invested in government bonds. You can check on the Internet. Of course no one is saying Japan should simply just keep increasing the debt level. Japan needs to put into place economic policies that will stimulate growth, increase tax revenue and then they can balance the budget.

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@JesusLovesJapan

check this: http://ftalphaville.ft.com/blog/2011/02/14/487246/japans-savings-rate-about-to-go-negative-goldman-says/

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Again, I'm aware of the savings rate. The actual savings stored up is also important. Check this: http://www.boj.or.jp/statistics/sj/sjexp.pdf

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Now is also not the time to be firing government employees. If anything, Japan should be hiring more government employees

@JesusLoveJapan, Hiring more Gov. employees does not improve GDP. That's why firing non productive bureaucrats are necessary.

And let me repeat, the Great East Japan Earthquake calls for even more public works spending to rebuild roads, bridges, buildings, power plants, schools, government offices, etc. I'm not daydreaming at all. What we need is not an ideological, but a pragmatic approach to economic policy -- if the situation calls for "Keynesianism", then so be it. If the situation calls for austerity, then so be it...

Agree. I am actually belive in Keynesianism (I and C and G) spendings to shift output economic curve to upward trend when the economy is in recession. Well, Keynesian really did not say what kind of Government spending they should be.

In my humble opinion, Japan really failed here a BIG TIME in the past. Japan went to spending spree and built many unnecessary airports and Hakomono centers that are now empty and useless.And these unemployed construction workers again became unemployed.

I believe the Gov. spending should be for both a short term and a long term.

A short term spending is to restore Tohoku. This will improve an unemployment rate 4.6% of Japan (relative to 9.2% US unemployment rate) to stimulate economy. For a long term government spending should be linked to a full time and a long time employment such as a life long education, R&D, building more nursing schools, nursing homes, and hospitals. I hope you can see what I am advocating here. These unemployed workers will gain a long term and a full time employment. That's a key for Japan's true recovery.

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Hiring more Gov. employees does not improve GDP

I'm not sure why you say this. Japan's GDP is composed of four items:

Private final consumption expenditure (57%) Government final consumption expenditure (18%) Gross domestic fixed capital formation (24%) Net export of goods and services (1%)

Salaries of government employees are included in 2 above.

Of course I also believe in efficiency, but let's be careful about which government employees we think should be fired. Many of those komuin people thought were useless became heroes as they had to go up to Tohoku to help out in the disaster areas, where entire government offices and many government employees were washed away by the tsunami (I write this with tears in my eyes). And again, people shouldn't clamor for firing government employees because of the mistaken notion that "Japan has too many government employees". Again, among the "advanced nations", Japan has relatively few government employees.

Your suggestions on what the government should invest in are good. But please don't deprecate the necessity of rebuilding and maintaining Japan's infrastructure. Many tunnels and bridges are nearing their end-of-life. We don't want to hear about falling bridges or collapsing tunnels. Earthquake-proofing and tsunami-proofing many structures is top priority. Compared with "advanced countries" again, Japan actually still has fewer roads. And also, in times of disaster, those "hakomono" can be used as evacuation centers...

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Governments have shown again and again their inefficiencies. The role of the government is not to be involved in economic life, as suggested by JesusLovesJapan, but to protect the natural rights of the residents (safety, property, protection from exploitation).

Let the private sector find innovative solutions. 5-year soviet-style planning won't be efficient because there is no way a group of bureaucrats now better (and in advance) what to do than the natural self-organization through the market.

Many of the destroyed cities were already in economic trouble before the disaster. Rebuilding infrastructures without even being sure people and business will come back is a waste of money. The government should instead provide a good framework for businesses to come and generate local life (maybe through free market "special economic zones" with low taxes and flexible laws, like Shenzhen in China for example, as suggested recently).

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Piglet, the kind of free-market fundamentalist ideology you advocate doesn't apply in Japan...

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@JesusLovesJapan Are you saying that the only way is government intervention? We should not deviate from THE truth: even though the Japanese government paid billions and billions in stimulus package for 20 years without any success, we should go further and pay even more? This is ideology.

What about trying something new and experiment with a different way? After all, the economic policies of Japan since 1990 were a complete failure, so we should be pragmatic and at least try giving more freedom to people (abolish the dangerous protectionist policies, curve the bureaucracy, deregulate the economy).

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I'm saying what is taken for granted in Japan (and elsewhere), i.e. that the private sector and the government have their roles. Your "truth" is a caricature, probably rising from not actually looking at the economic data. Japan's public works spending has been decreasing steadily, yet there is still a lot of things that the government should spend on, and that Japan can afford to spend on -- especially during this time of deflation. To advocate anti-inflationary measures (deregulation, cost-cutting, etc.) at a time of deflation is the mark of an ideologue. To say that Japan's economic policies since 1990 were a "complete failure" , even though Japan has been the world's biggest creditor nation for 20 years straight, is to insist on looking at Japan through ideological glasses...

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@JesusLovesJapan, what you are saying is an old Keynesian theory. Keynesian theory works very well in under developed countries, like Japan was in the 60's and 70's. Not so much any more. As Piglet pointed out, government spending is very inefficient, companies who have connections get contracts, doing road construction that we don't need etc. Let private sector spend money in the way they want. And make it easy for people to start their own business, like reduce corporate tax etc.

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Hide Suzuki

I think you're missing JLJ point about the current deflationary spiral that's going on in Japan.

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