Japanese should take heed of Greece's woes

On the surface at least, Japan and Greece would appear to have little in common.

Well, that would be the case because, economically, Japan and Greece have nothing in common.

Because the root causes of Greece’s unmanageable debts, which triggered its current financial crisis, hark back to 2004, the year that Athens hosted the Olympic Games.

The roots of Japan's problems can be traced directly to kasumigaseki and they go farther back than any recent Olympics.

With Abe spending money like there's no tomorrow, including the olympics infrastructure, one wonders if there isn't some plan behind all this.

Get the country into such huge debt that it has to be bailed out by the IMF? The international version of "Sarakin."

Japan does not borrow money from outside, it borrows from its own people, therefore Japanese government does not have external restriction to limit its borrowing like Greece, Israel or any of the EU nations; ratio of national debt to GDP is irrelevant to Japan since it does not have to convince outside lenders with credit rating. Japanese government can keep on borrowing form its own people as long as it can print Yen to pay the interest on the borrowing in Yen. Inflation is one of main restrictions on the Japanese government to rake up national debt, but Japan is fighting deflection not inflection, Japanese like the government to print more Yen not less, hence there is no resistance against the Japanese government to rake up more debt.

CrazyJoeJUL. 11, 2015 - 08:56AM JST Japan does not borrow money from outside, it borrows from its own people, therefore Japanese government does not have external restriction to limit its borrowing like Greece, Israel or any of the EU nations; ratio of national debt to GDP is irrelevant to Japan since it does not have to convince outside lenders with credit rating. Japanese government can keep on borrowing form its own people as long as it can print Yen to pay the interest on the borrowing in Yen. Inflation is one of main restrictions on the Japanese government to rake up national debt, but Japan is fighting deflection not inflection, Japanese like the government to print more Yen not less, hence there is no resistance against the Japanese government to rake up more debt.

A concise explanation. Further, I don't know of single Greek firm awash in cash as are dozens of Japanese firms. The Japanese economy may have huge holes in it, but it's industries are far from broke. The Greeks, however, like the Irish and Portuguese in particular, had a crap economy at the time they were admitted to the EU and, again, like the Irish and Portuguese, were living large on EU transfers. Since WWII, it's never had anything approaching a robust economy and has been plagued by governments as incompetent and unstable as Italy.

What economists call 'demand-pull' Inflation is usually good because it happens naturally with real economic growth. But creating 'cost-push' inflation which just raises prices by printing money without any growth (which is what Japan is doing) its not good for ordinary households or for the prospects of future economic growth. People need to distinguish between the two. If we desperately need inflation solely to monetize the debt, the government is borrowing way too much.

Nobody in Greece has ever died of the "over worked syndrome" that exists in Japan. Nobody in Japan who works in a regular job gets two weeks of paid vacation just because he or she works for a local fast food. Nobody retires in Japan at age 50 with full health benefits unless he or she wins the lottery. Do not worry, Japan is not even close to the financial situation that Greece has. Japan pays it bills and the UN's bills. The Greeks should say thank you to all the countries that have put up with the Greek Games.

I don't think Greek debt issues will have an effect on Japan, but the financial/stock issues in China over the last few days are real.

http://www.reuters.com/article/2015/07/10/us-china-markets-idUSKCN0PK09B20150710

China’s new car sales recorded the first year-over-year decline in more than two years in June, as slowing economic growth and falling stock markets hit the world’s largest auto market. “2015 will be an off-year for the Chinese car market,” said Dong Yang, a vice president for the auto manufacturers’ association, and we note auto dealers are seeing orders cancelled at a frenetic pace as it appears stock margin calls are draining the liquidity car-buyers once had.

Japan DOES have limits on what it can borrow. If you use the argument "Japan borrows from its own people so it's OK" only holds valid if it DOES NOT MONETIZE THE DEBT.

So long as Japan's debt is held by the "people" meaning deposits in J-post are converted into bonds, that's fine.

However, Japan's debt is MUCH LARGER than the "people" have loaned. They've done this by monetizing the debt.

Meaning they borrow money from the BOJ, and the BOJ keeps the bonds. Accounting magic. Thin air money.

This is NOT UNLIMITED.

Once the total of tax revenues pays for 100% of the interest on the debt, then it's GAME OVER.

In a strange sense, Greece is in a BETTER SITUATION than Japan, as they can be given loan forgiveness, etc.

Once Japan reaches the point where all REAL bondholders (Not the BOJ) realize they are NEVER GETTING REPAID, then Japan's money will suddenly POOF in nothingness.

This is called HYPERINFLATION. People will start converting their yen into dollars.

Once you see Japanese politicians talking about limiting the amount of dollars, or making pure dollar purchases illegal, (like in Venezuela) then you know the end is near.

This is why the BOJ is terrified of the dollar / yen rate. If it goes too high, it will never come down.

Oil imports, and all other things Japan MUST buy with its yen will be UNAFFORDABLE.

All economic activity, then, screeches to a halt.

After WWII in 1953 the U.S. and Allied Powers cancelled 50% of German debt from WWI & WWII, the rest of the debt payment was limited to 3% of exports. Greece, who was occupied by Germany also forgave German debt and this is how Germany repays Greece.

Opposites when comparing economic fundamentals. However opposites attract analysing Government inertia, reticence, behaviours to tackle debt sustainability and formulating policy to implement structural reforms (arrow 3).

But that is where the similarities end. J- public holdings are valued at some $20 + trillion, 3/4 times total economic output a variable ocean of private household savings that are being invested into JGB's slightly under 90% , little foreign debt obligation.

Greece on the other hand is the complete opposite, really don't want to go there, for moi , it's back to Paris, Friday-ish to sharpen my pencils.

I would say Greece is in far better shape than Japan. The EU will inevitably will write off all the debt in Greece, knowing full well Greece can't pay them back. Greece is a small economy so this is possible without EU going bankrupt. However in Japan, Japanese government will have to pay back all their money they borrowed from her citizens, keeping Japan as the most indebted nation on earth.

Instead of heeding it, though, Abe has taken it as a personal message that they need to spend MORE. The fact is Japan is a little bit safer AT THE MOMENT because most of its debt is to itself, but imagine when the 'my number' system comes out in October as but a microcosm of what could happen -- I already know a bunch of people who have bought or ordered safes so that they can withdraw savings and keep them at home. Since all of Japan's wealth is in its personal savings, if the government feels there's a threat that people will scramble to take out money, the banks will close temporarily -- and just imagine that.

@papi2013

Always nice to read your unbiased opinions.

However in Japan, Japanese government will have to pay back all their money they borrowed from her citizens, keeping Japan as the most indebted nation on earth.

No. It's a net sum zero game on Japan's (which includes citizens, businesses, and government) balance sheet. In Addition, Japan is the largest net creditor in the world for over twenty consecutive years. It's financial net worth. Some base this on how rich you are.

I find it amusing that posters write comments like above and still fail to realize that he/she basically dug his/her own grave.

already know a bunch of people who have bought or ordered safes so that they can withdraw savings and keep them at home. Since all of Japan's wealth is in its personal savings, if the government feels there's a threat that people will scramble to take out money, the banks will close temporarily -- and just imagine that.

Smith,

No you don't.

But thanks for reaffirming the fact the yen denominated currency, which by the way is issued exclusively by BOJ, will still be valuable to the citizens who decides to take your imagined scenario. Lol.

"On the surface at least, Japan and Greece would appear to have little in common."

And in depth they also appear to have little in common. This is a nonsense article cherry picking statistics to support an opinion.

Can any of you financial experts explain something to me. Please use the KISS principal (Keep it simple stupid), if possible. How can Japan simultaneously be the nation with the highest debt to GDP ration country while also maintaining their status as the top creditor nation in the world. Somehow the two sound incongruous.

Since I like to keep it simple, here's my street view of things. When I first moved to Japan in 1991 people in their 20s and above thought nothing of spending 20,000 to 40,000 yen on any given Friday/Saturday night for their entertainment. In the mid-1990s through mid 2000's I noticed this had fallen to a normal night's entertainment cost of 20,000 yen or less. During my time living in Japan from 1995-2005 I really enjoyed going out on any given evening to several places in Tokyo usually followed up by a late night to early morning binge at Club Harlem in Shibuya. I still try to keep up this pattern when I visit Japan on vacations. Anyways, on my most recent trip to Tokyo last summer I had several conversations with normal everyday people (ages ranging from 20-60). During the course of our conservations, especially with the 40+ crowd, the subject would always progress, or should I say revert, to the "good old days," meaning the bubble days of the 1980s and 1990s. Needless to say, those days are long long long gone. Here was the breakdown of the averages for a Friday/Saturday night out:

40+: 10,000 to 30,000 yen (not much difference from the old days. More if they're going to fuzoku) 30-40: 15,000 yen or less (usually much less) 25-30: 10,000 yen or less unless on they're a male on a date (of course 90%+ of all Japanese women expect the male to pay for everything) 20-25: Under 6,000 yen and if they're still in university even less than that.

From my simple perspective, things are not looking good for any part of the Japanese economy.

Actually Greek workers put in longer hours than do Japanese. Chief economist Izuru Kato of the Totan Research Co Ltd cited a 2013 study by OCED, which found that Greeks worked an average of 2,037 hours annually, ranking them the second longest after Mexico, with 2,237 hours. Japan, with 1,735 hours, ranked 16th. As wages there tend to be low-paying, it’s not unusual for many Greeks to hold second or third jobs.

2013 that old testament in OECD terms... naughty naughty, full circle.....

Japan economic summery notes 2015 ....take your time ......

http://www.oecd.org/eco/outlook/japan-economic-forecast-summary.htm

Measurement and Reduction of Administrative Burdens in Greece: An Overview of 13 Sectors.....take even mere time...

http://www.oecd.org/greece/measurement-and-reduction-of-administrative-burdens-in-greece.htm

The other difference is that Japan is an enormous creditor nation. For Japan this is a two-way street and for Greece it is anything but. Japan is nowhere near a Greece-type collapse. It is a powerful economy with its own currency and huge holdings of overseas debt as well as a large debt of its own, 91% held by its own people and institutions. What we will see in Japan is a continuing fall in real earnings and an increasing number of working and non-working poor, but this happens in other modern economies too.

hampton, that's what I was speaking about. I guess since Japan's debt is being financed at home through the Postal Savings Accounts, etc. they are able to be both the highest creditor nation and have the worst debt to GDP ration. Am I wrong on this, over-simplified perhaps?

@Shibuyajay2

Can any of you financial experts explain something to me. Please use the KISS principal (Keep it simple stupid), if possible. How can Japan simultaneously be the nation with the highest debt to GDP ration country while also maintaining their status as the top creditor nation in the world.

It is not voluntarily. If country sells more than it buys, it has to find a way to give its own currency to foreigners. If it doesn't do that, the value of its own currency will rise until it is too expensive for foreigners to buy anything any more. Japan doesn't want that.

Gaijinfo is more right than this article. Borrowing from BOJ is like jumping from the roof. If you decide to keep your eyes closed, you convince yourself that you can fly.

@gaijin info. Thankx for that input.

And long before 2021, China's economy 'might' implode and take most of the world economy along with it. Sadly these days a little country like Greece can cause the 'Euro' to become unstable and cause crude oil prices to fall by as much as 14% due to speculation of a possible Euro zone meltdown. When China, which is in trouble already and seems to be gearing up for some kind of confrontation by shoring up its military, building airstrips in the middle of the south China seas and pretty much bullying everyone in the region finally gets to its tipping point then Japan's 2021 predicted recession will be the least of anyone's worries in Japan.

I would say Greece is in far better shape than Japan

Then please move to Greece and complain about the country on "Greecetoday" Tool.

The article is nonsense. Japan's debt is in its own currency, and on top of that mostly held internally. That is a completely different situation from Greece with its Euro debt owed to international banks.

It sounds like a slow news day at the Nikkei...

CrazyJoe is 100 percent correct. Japan the government owes all its debt to its own people and companies. They are not going to crash the national economy. Now western countries sells their debt to their enemies who want to crash their national economies. So Japan and Greece or any other Western country have nothing in common when talking about GDP to debt ratio. its comparing carrots to books...

if you understand the economic conditions in Japan and Greece at the moment do not pay too much attention to this thread, it will only serve to confuse you

Reckless

Do you understand that Japanese people and companies spend lifetimes and hundreds of years saving money? Japanese banks also do not work like banks in most other countries.... try again buddy...

@ShibuyaJay2

Can any of you financial experts explain something to me. Please use the KISS principal (Keep it simple stupid), if possible. How can Japan simultaneously be the nation with the highest debt to GDP ration country while also maintaining their status as the top creditor nation in the world. Somehow the two sound incongruous.

I'm certainly no expert, but I think your confusion stems from conflating the Government of Japan with the Bank of Japan. To answer your question as simply as possible, the Government of Japan is broke and massively in debt, they are a creditor to no-one. However, the Bank of Japan is another story.

When you hear people say that 'Japan' is one of America's biggest creditor, they are actually refering to the BOJ. The BOJ is officially independent of the Government of Japan, and they are the only people who control the yen printing presses. The BOJ prints yen and buys up huge amounts of foreign currency reserves on the open market as security so that they can protect the value of the yen in a crisis. Rather than have the foreign currency just sit there not earning anything, the BOJ buys US government bonds (Also, Canadian, Euro bonds etc) so that they can earn a small amount of interest. This is why the Bank of Japan is a massive international creditor, but not the Government of Japan. Hope that answers more questions than it raises!

ShibuyaJay2, You have all the expertise you need it frankly inspirational.....

Japan does not borrow money from outside, it borrows from its own people, therefore Japanese government does not have external restriction to limit its borrowing like Greece, Israel or any of the EU nations; ratio of national debt to GDP is irrelevant to Japan since it does not have to convince outside lenders with credit rating.

Joe, what happens when the Japanese people who are financing that debt run out of money? Especially with Abenomics. The government is making the prices of commodities even more expensive, literally biting the hand that feeds them. By printing money and creating inflation, you reduce the purchasing power of the Japanese public making it more difficult for them to continue to purchase government bonds. Add the overspending of the government for the Olympics, what do u get– A one-way road to a financial disaster that will make Greece look like a Tupperware party. What makes Japan's predicament even more dangerous is the fact that that it is not part of a larger economic block like Greece. When it does collapse, and it will, there will be nobody there to bail them out.

If you want to know more about in this financial collapse, may I suggest going to YouTube and typing in Kyle Bass or Peter Schiff and add the word Japan to it.

I don't see the Japanese economy, which exports a lot and doesn't rely so much on tourism; just the opposite of Greece. Now NY and Greece, sure....

This article is totally off, the Olympics is why greece is failing? Sorry but greece is failing because everyone in that country is either a government employee doing zero work for a large paycheck, A relative of a government employee, doing no work for a paycheck, a load of retired people who did no work and are getting big retirement checks and the vast majority of everyone else on the government dole for "free" everything.

No one is working, everyone is on the socialist handouts all paid for by borrowing massive amounts of money to pay for it and having no productive capacity to cover the borrowing and like all marxist style managed economies where nearly everyone is on the government dole, no one has any reason too or incentive to work.

This is why Greece failed. Simply stated it is yet another example of failed socialist ideology.

Japan may be borrowing insane amounts to fund retirements and olympics and whatever else but Japan also has the 3rd largest economy in the world, with a population mostly working hard and certainly is productive enough to keep up and not fail like greece. Japan is in no danger of failing like Greece.

So, the author's argument is Greek spent too much on hosting the Olympics and now is facing debt suicide, and because Japan is hosting the Olympics, the same.

Right.

I guess the only problem with this, er, analysis, whereas Greece is a country of 11 million and ranks 44th in GDP, Japan is a nation of 125 million, and ranks no 3 in GDP.

Oh, and isn't part of the EU.

Classic case of mixing correlation and causation and then applying the supposed lessons learned to an apparently similar case. Athens Olympics may have a been a complete boondoggle, but they were not the cause of today's problems. The problems were inevitable when they joined the Euro, Olympics or no Olympics. As for watching Kyle Bass videos, there are estimates that Bass lost 95% of the money he allocated to shorting Japanese government bonds, before giving up. He did make money on his related hedge of shorting the yen, but that was not how the plan was supposed to work back a couple of years ago when he busy out talking his book about the "Trade of the Century" and being fawned over by the media.

Otherwise, some good comments here, but also some myths that really die hard. One, when the Japanese public runs down their savings those yen don't "disappear". They just go into the account of whichever company received their savings. Effect on the banking system and the bond market is zero, the money has just shifted to an account with a different name on it. Two, that the Japanese government will have to get money from foreigners when the "money runs out". Well, as stated above the money is not going to run out, but even if it did the foreigners don't have Japanese yen and that is what bonds are sold in exchange for. Whether currency is held domestically or by foreigners is a function of the trade balance and what currency the trade is done in. And as US Treasuries show, there is no effect on the bond market if money is held by foreigners, again it is just a name on an account and the money behaves exactly the same. Three, that the Bank of Japan is "monetizing" the debt, and that interest payments on this debt will cause everything to blow up. Actually what is happening is that both the BOJ and MOF are run by a bunch of old guys who learned their "economics" decades ago from textbooks that were already out of date at the time. Monetizing the debt is a concept that is a relic of the gold standard, and has no applicability today. All they are actually doing is moving money from JGB accounts to bank reserves because they think where money sits has an effect on the economy. Except for possible exchange rate effects, it doesn't, as the evidence of QE shows. As for interest payments, all interest received on bonds held by the BOJ is returned to the MOF. There is no cost to the government of Japan, and as the BOJ could at any time purchase all outstanding bonds eliminating all interest payments, the only problem is the refusal to do so. In fact, by not allowing the private sector to receive interest payments, the effect of QE is deflationary and counter to the stated objectives of the BOJ.

Well, if there is no international market for exports of fancy Japanese goods, austerity and taxation can ensue. We're all participating in a global market which can affect us all. If China collapses; America; Europe, hundreds of thousands (if not millions) are unemployed. Even on smaller levels, if the economies of places in which Japan exports to slows, Japan also slows. Taxes can only go so far before it causes a deep poverty within the society.

Except for possible exchange rate effects

Guy, I agree with a few of the economic principles you point out, but isn't this the real critical problem with this plan in the long run? It shouldn't be glossed over. If the BOJ keeps buying bonds indefinitely, the value of the yen will just keep dropping. A weaker yen by itself is not a bad thing, but a perpetually falling yen without any forseeable bottom would be extremely unstable. Who would want to set up a business, investment or have consumer confidence in this type of economy? None of the drivers of real economic growth would ever take hold in Japan. Has any other country ever succeeded with such a plan? Because I can name a few that have failed.

"If you want to know more about in this financial collapse, may I suggest going to YouTube and typing in Kyle Bass or Peter Schiff and add the word Japan to it."

Kyle has taken an investment position that reflects your views....and he's lost his shirt. Nothing about that bet has ever worked out after all these years.

Maybe it's time for people to ditch a set of beliefs that are consistently proved wrong by events in the real world? Nahhhh.

In the meantime, I'll waiting for the day when Japan's authorities "run out" of the money they have sole right to issue. That ought to be interesting!

Great to see Guy has gone on for a couple of hundred words, again, of pure fiction, since his very first statement is false. As he correctly states, as I did, the Japanese public is "running down its savings", but he falsely says this has "zero" effect on the bond market, which he must know is nonsense. Even if 100% of those savings are spent in Japan -- which is a ludicrous assumption -- he knows full well that the percentage that would find its way back into banks, JP, etc as potential buyers of bonds is far less than that. Just the tax bite alone for the companies and employees that might receive these funds lowers the percentage available by roughly 40%.

It's simply amazing that a person that types this haven't figured out for if he goes just a step further, he will be making an argument for Guy and JeffLee.

Hint: "Yen" issued, bought, sold, spend , etc. does not disappear into thin air.

@noriyosan73 with the 6 thumbs-up

Nobody retires in Japan at age 50 with full health benefits unless he or she wins the lottery.

Would you like to tell us at what age in your country do single mothers with one or two underage children retire? 67?

Guy_Jean_Dailleult JUL. 12, 2015 - 09:54AM JST that the Bank of Japan is "monetizing" the debt, and that interest payments on this debt will cause everything to blow up.

I doubt it. Result is that Japan probably will have marginal increase in inflation and growth. Japan is using monetized fiscal deficits to put spending power directly into the hands of companies and households. As you know, the government owns the BOJ, which returns the interest it receives on government bonds to the government, it is only the declining net figure that represents a real liability for future Japanese taxpayers. The BOJ eventually will sell back all of the government bonds that it has acquired. But it need not do so. The BOJ could maintain its current level of government debt holdings indefinitely, making new purchases as existing bonds mature.

The slow growth and high unemployment would be far more serious in Greece and the entire Europe, with its diverse national identities and ethnic and religious minorities, than in Japan. Japan simply needs to adjust its accounting entries.

Japan should stop spending so much money to help other countries or the international bodies such as UN when the Japanese people's lifestyle is very poor (small housing, narrow roads) no matter how hard they have worked.

@M3M3M3 Would be the case if the yen continued to fall in a straight line, but the drop in the yen due to QE appears to be self-limiting. QE just means that cash assets that would be parked in JGBs are now looking for yield elsewhere, and one place is foreign assets. But as that pushes the yen exchange rate down, the risk of that strategy goes up. Lower the yen, the greater the possible exchange rate losses, to the point where nobody will do it. Also, when the profits on these foreign investments are eventually brought back to Japan they will work to push the yen back up. Of course, Kyle Bass claimed the yen will go to 300, but it seems to have stabilized in the low 120s.

@sfjp330 - Agreed, it is all just accounting entries. No relation to the real problems in the real economy.

Hint: "Yen" issued, bought, sold, spend , etc. does not disappear into thin air.

nigelboy -- "Hint" -- really? Brilliant deduction on your part. I never would have figured that out. Thanks for the accounting lesson. But the point is it does not go back into "savings" which is the well that the government has relied on for decades to fund its over-spending. As a result, over time,the only market for the debt will become the BOJ, and/or foreign investors. Neither one of which is sustainable "in the long term" as I stated. LOL. I sure hope you, Guy, and Jeff have your retirement savings invested in Japan since you are so positive on its future.

If your country pull out US army from Japan and the English teachers from all over Japan's high schools, Japan can reduce the huge debt you are laughing at.

Not really. If the US army pulls out of Japan, Japan will need to replace at least part of it by building up their own self defense.

And you could get rid of every JET teacher in this country, and it wouldn't make a dent in the debt. Their salaries are an entirely insignificant percentage of the economy.

Greece stands very different than Japan, geographically and culturally Greece have a very strong and deep connection with other European nations and they will help in the case of total collapse. but for Japan collapse means collapse, unfortunately Japan have a difficult relations with all of the neighbour countries,similarly Japan never tried to create people to people connection with other nations,which is extremely important in the times of such difficulties.

nigelboy -- "Hint" -- really? Brilliant deduction on your part. I never would have figured that out. Thanks for the accounting lesson. But the point is it does not go back into "savings" which is the well that the government has relied on for decades to fund its over-spending. As a result, over time,the only market for the debt will become the BOJ, and/or foreign investors. Neither one of which is sustainable "in the long term" as I stated. LOL. I sure hope you, Guy, and Jeff have your retirement savings invested in Japan since you are so positive on its future.

You still haven't figured it out. If people and businesses are tapping into their savings, it's because they are finally spending. Rather than sitting there, the money withdrawn is now circulated to various entities. It's simply an accounting entry journal where the sum does not disappear into thin air. Tax revenues increases which equals less reliance of government bonds. It's exactly what the policy makers want.

You still haven't figured it out. If people and businesses are tapping into their savings, it's because they are finally spending. Rather than sitting there, the money withdrawn is now circulated to various entities. It's simply an accounting entry journal where the sum does not disappear into thin air. Tax revenues increases which equals less reliance of government bonds. It's exactly what the policy makers want.

nigelboy -- No, unfortunately it is you who "still hasn't figured it out". But, don't believe me, here, for example, is what the BBC reported this past December:

For the first time since records were collected in 1955, Japan's population is drawing down its savings and the savings rate, calculated as savings divided by disposable income plus pension payments, was negative 1.3%.

After all, an aging population draws down savings and Japan is the fastest-aging country in the world; its population has been shrinking for a decade

Unsurprisingly, households are spending less. The average spend has dropped by 2.5%, which is the eighth consecutive drop - a trend that won't help boost domestic demand and prices.

Sure, as you state, they are "spending", but they are doing it at a lower rate than they were when they were employed -- obviously. (You do understand that concept, right?) Therefore, an economic plan based on increased consumption and inflation is doomed for failure. As has been proven the last three years with Abe and Kuroda at the helm.

And, as far as this crazy notion of the BOJ "monetizing" all the debt, you, Guy, and Jeff keep tossing out, let's see what Wikipedia says about that concept:

When government deficits are financed through debt monetization the outcome is an increase in the monetary base, shifting the aggregate-demand curve to the right leading to a rise in the price level (unless the money supply is infinitely elastic).[2][3] When governments intentionally do this, they devalue existing stockpiles of fixed income cash flows of anyone who is holding assets based in that currency. This does not reduce the value of floating or hard assets, and has an uncertain (and potentially beneficial) impact on some equities. It benefits debtors at the expense of creditors and will result in an increase in the nominal price of real estate. This wealth transfer is clearly not a Pareto improvement but can act as a stimulus to economic growth and employment in an economy overburdened by private debt.[citation needed] It is in essence a "tax" and a simultaneous redistribution to debtors as the overall value of creditors' fixed income assets drop (and as the debt burden to debtors correspondingly decreases). If the beneficiaries of this transfer are more likely to spend their gains (due to lower income and asset levels) this can stimulate demand and increase liquidity. It also decreases the value of the currency - potentially stimulating exports and decreasing imports - improving the balance of trade. Foreign owners of local currency and debt also lose money,When government deficits are financed through debt monetization the outcome is an increase in the monetary base, shifting the aggregate-demand curve to the right leading to a rise in the price level (unless the money supply is infinitely elastic).[2][3] When governments intentionally do this, they devalue existing stockpiles of fixed income cash flows of anyone who is holding assets based in that currency. This does not reduce the value of floating or hard assets, and has an uncertain (and potentially beneficial) impact on some equities. It benefits debtors at the expense of creditors and will result in an increase in the nominal price of real estate. This wealth transfer is clearly not a Pareto improvement but can act as a stimulus to economic growth and employment in an economy overburdened by private debt.[citation needed] It is in essence a "tax" and a simultaneous redistribution to debtors as the overall value of creditors' fixed income assets drop (and as the debt burden to debtors correspondingly decreases). If the beneficiaries of this transfer are more likely to spend their gains (due to lower income and asset levels) this can stimulate demand and increase liquidity. It also decreases the value of the currency - potentially stimulating exports and decreasing imports - improving the balance of trade. Foreign owners of local currency and debt also lose money, Fixed income creditors experience decreased wealth due to a loss in spending power. This is known as "inflation tax" (or "inflationary debt relief"). Conversely, tight monetary policy which favors creditors over debtors even at the expense of reduced economic growth can also be considered a wealth transfer to holders of fixed assets from people with debt or with mostly human capital to trade (a "deflation tax").

So, in short, the BOJ's "strategy" of buying up more and more of the debt is hurting the current debt-holders -- the seniors -- even more. They have simply created a vicious cycle of, as stated: "Fixed income creditors -- the pensioers -- experience decreased wealth due to a loss in spending power", the very folks who's savings financed the debt over the past couple of decades. Who now make up the biggest part of the economy.

Respectfully, all your, Guy's and Jeff's wonderful theories fall apart when faced with the reality of Japan's demographic and economic situation.

nigelboy -- No, unfortunately it is you who "still hasn't figured it out". But, don't believe me, here, for example, is what the BBC reported this past December:

This is why'saving rates' doesn't say crap when the total household financial assets have increased.

https://www.boj.or.jp/statistics/sj/sjexp.pd

Pg.6

1,708 trillion yen at the end of 3/15, an increase from 1,623 trillion yen on 3/14.

Pg.1 basically is Japan's (individuals, government, businesses,) financial balance sheet. Pg.2 is the net flow for 2014.

There is still way too much optimism about Japan as evidenced on this thread and elsewhere. The fact is, Japan is in serious trouble from this point going forward for as far as the eye can see. I did not see anyone in this thread mention Japan's aging and shrinking population as they made their optimistic cases, which proves to me that the full reality and seriousness of the situation has not yet been fully recognized by most. When the day arrives where most people agree with my more pessimistic view, then I will probably become a lot more positive on Japan's future.

@nigelboy - Apparently we are living in some alternate universe that you and I don't know about where the financial assets of Japanese corporations, companies, and wealthy individuals can NOT be used to purchase Japanese government bonds. Only the financial assets of desperate pensioners running down their life savings can be used for this task.

As for what economic theory says will happen if you increase the monetary base, yes, I am well aware of what the theory says will happen. I am also well aware that reality has debunked the theory many times, as is happening again now in Japan.

@nigelboy - Apparently we are living in some alternate universe that you and I don't know about.

Finally, we agree. Your "alternate universe" is based on wonderful theory, but has no basis at all in the reality of Japan's demographics and economy. Despite all the wonderful terms and big words you guys throw around, none of has responded to the simple points I made. nigelboy's "statistics" as he says, includes government debt, so it is a self-fulfilling prophecy -- of course it has rsien, because the issuance of debt is going on unabated. And neither of you can address the short-comings of the "monetezation" theory you keeping spouting on about.

As for what economic theory says will happen if you increase the monetary base, yes, I am well aware of what the theory says will happen. I am also well aware that reality has debunked the theory many times, as is happening again now in Japan.

Really? Name one? And one that has ANY close resemblence to Japan's situation.

@jerseyboy - It's not our alternate universe, it's yours. As for any close resemblance to Japan's situation, try any country which has also used a program of quantitative easing. A little country called The United States of America for starters.

Differences. Japan has its own currency. Japan has a productive economy. Japan has plenty of companies flush with cash. similarities. japan is wasting a ton of money on the Olympics. Japan is massively in debt which is a drag on growth and will one day have to be repaid.

Japn can devalue its way ourt of trouble by monetising debt..... and eventually will have to. saying Japan borrows mainly from its own cirtizens has been true to date but now aging population not saving but drawing on savings and pensions. Dam will eventually break.

@jerseyboy - It's not our alternate universe, it's yours. As for any close resemblance to Japan's situation, try any country which has also used a program of quantitative easing. A little country called The United States of America for starters.

Guy, that is without doubt the silliest comment you've made on JT. To compare a country with a growing economy, and population, has a debt to GDP ratio of roughly 100% (and that will decline due to the budget sequestration of 2013), and is rich in natural resourses (especially oil and gas) and is the "bread-basket" for the entire world, with a slumping, aging, resourse-poor country that has debt of over 230% of GDP and must import about 60% of its basic claoric needs is simply foolish.

Macroecomic theory would hold that these JGBs are assets belonging to the Japanese taxpayers and Japanese investors that have been "encouraged" to purchase them, and that as such they are not a liability, but go on the plus side of the govt balance sheet... so much for macroeconomic theory.

In the face of a declining market for future tranches of JGBs from domestic sources (postal savings bank, insurance companies, brokerages, etc) Japan will at some future point have to print money to redeem them. In addition, the govt will either a) have to turn to international bond markets, which will determine the applicable rates of interest, and/ or b) debase the currency and bring on rampant inflation.

Guy, that is without doubt the silliest comment you've made on JT. To compare a country with a growing economy, and population...

I didn't compare Japan to the United States. I said the monetary situation in both countries is the same, and both countries have been using the same discredited economic theory (the belief that increasing the monetary base is inflationary and stimulative). And they have had the exact same results in terms of (not) generating inflation (as is claimed should happen in the Wikipedia entry). As has every other country that has followed this textbook prescription. The reason it doesn't work is that there is no such thing as "monetizing the debt", and there hasn't been since the ending of the Gold Standard. So there is really no point in constantly lecturing me and others about the "inevitability" of a danger that doesn't exist in the real world, and which exists only in outdated textbooks that should have been thrown in the trash decades ago.

Greece demonstrates the importance of not getting into debt with foreign creditors more than anything.

And long before 2021, China's economy 'might' implode and take most of the world economy along with it. Sadly these days a little country like Greece can cause the 'Euro' to become unstable and cause crude oil prices to fall by as much as 14% due to speculation of a possible Euro zone meltdown. When China, which is in trouble already and seems to be gearing up for some kind of confrontation by shoring up its military, building airstrips in the middle of the south China seas and pretty much bullying everyone in the region finally gets to its tipping point then Japan's 2021 predicted recession will be the least of anyone's worries in Japan.

Time to take off that tin foil hat and give it a rest.

Does the average Japanese worker get 6 days off for "Computer leave"? That is, 6 extra days of paid vacation if your job requires you to sit in front of a computer for five or more hours a day? The Greeks do, or rather did, up until a year or so ago. Imagine that, 6 days off for using a computer to get your job done. Lol, sure the Japanese often display a false business when it comes to work (they stay late twiddling there thumbs until their manager deems it has been long enough), but to actually get 6 extra days off for using a computer? Long live the Greeks and their austerity measures.

The government insists that the outlays will bring economic benefits, but right now Japan takes in about 50 trillion in tax revenues and blows 100 trillion in expenditures

Imagine Japan is a drunken sailor who wants to impress new girlfriends at the city which was his ship docked. He will shower the girls with fine dinning experience at the expensive restaurant. He will shower the girls with fancy gifts.

During the dinner, sailor will show off with his unlimited spending power. When the party is over, the bill was more than twice of his annual salary. His credit card bill has been skyrocketed.

He is heavily indebted because of the expensive dinner and gits. The only solution for paying off the debt are selling his personal asset. If not he should default the debt and surrender his credit card.

Olympic game will be proud moment for Japan. It will be joyful celebration with national pride for a few weeks. However the cost will exceed beyond the benefits. As far as Yen is low and Japan is getting cheaper, tourists will come whether there will be Olympic or not.

If Greece has not hosted extravagant Olympic in 2004, they will not blow out the budget and spent like the drunker sailor. Tokyo Olympic 2020 will make Japan is broke and heavily indebted.