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The debt crisis: the enigma of Japan

17 Comments
By Lee Jay Walker

As an economic model, Japan for the last 20 years has been the nation to kick and look down at with disdain, while the American model was deemed to be dynamic, flexible and based on market principles. The banking crisis in America has clearly shown the world that state intervention was the order of the day and several years later, the “apple pie” appears to be getting covered in more debt.

The European Union is also engulfed by a different debt crisis but one in which the situation appears to be spreading. No solutions appear to be on the table in order to remedy the crisis. Therefore, both the U.S. and the European Union seem to be following the Japanese model but with different characteristics.

Ironically, despite Japan “throwing away two wasted decades” and the terrible events of March 11, the government of Japan has bought more of Europe’s debt in order to boost the European Union. Also, given the huge economic crisis generated by the tsunami and ongoing radiation crisis, it is difficult to imagine America coping with such a strong currency despite all the problems which are happening in Japan.

However, it appears that Japan keeps on ticking while America keeps on selling more of its debt and given the lack of government policy directed toward the weakening dollar, it does appear that Washington is not responsive to the international community. Therefore, the currency of Japan is paying a high price that is not based on market fundamentals.

In The Economist article titled "Debt and Politics in America and Europe: Turning Japanese," the opening paragraph states “A GOVERNMENT’S credibility is founded on its commitment to honor its debts. As a result of the dramas of the past few weeks, that crucial commodity is eroding in the West. The struggles in Europe to keep Greece in the euro zone and the brinkmanship in America over the debt ceiling have presented investors with an unattractive choice: should you buy the currency that may default, or the one that could disintegrate?”

Currently, Japan’s debt ratio is the highest in the world but nothing is clear in Japan because this nation still intervened and offered a helping hand to the European Union. Also, Japan’s unemployment rate remains relatively low when compared with the speed of unemployment in America and in other nations where it is even higher, for example, Spain. Therefore, while U.S. debt may be half the rate of Japan’s, the government of President Barack Obama did not step in to provide support to the European Union and nor does his government appear to care about stabilizing the dollar.

China, which depends heavily on Western natural resources and which is the largest holder of U.S. Treasury bonds, must be at a loss because many major democracies and economic powers are in crisis. Also, more importantly, it does appear that some democratic nations are blighted by political systems which focus on power at the expense of long-term benefits for society.

Turning back to the article in The Economist, the author states: “America’s debt debate seems still more kabuki-like. Its fiscal problem is not now — it should be spending to boost recovery — but in the medium term. Its absurdly complicated tax system raises very little, and the aging of its baby-boomers will push its vast entitlement programs toward bankruptcy. Mr Obama set up a commission to examine this issue and until recently completely ignored its sensible conclusions. The president also stuck too long to the fiction that the deficit can be plugged by taxing the rich more: he even wasted part of a national broadcast this week bashing the wealthy, though the Democrats had already withdrawn proposals for such rises.”

China's state-owned Xinhua news agency commented about the debt debacle in the U.S., noting: "Given the United States’ status as the world’s largest economy and issuer of the dominant international reserve currency, such political brinkmanship in Washington is dangerously irresponsible.”

Meanwhile, Russian Prime Minister Vladimir Putin says of the U.S.: “They are living like parasites off the global economy and their monopoly of the dollar.” Putin's language was strong but clearly many individuals share similar sentiments.

The Soviet Union bit the dust because it could no longer create a viable economic system which could maintain economic growth. The Chinese Communist Party understood this and shifted its emphasis toward economic growth and generating wealth irrespective “if the mouse was communist or capitalist.”

Will the U.S. and certain members of the European Union learn from the failure of Japan and implement genuine fiscal reform measures? Or will they follow the Japanese model and do little in the short-term in order to preserve their political power bases?

© Modern Tokyo Times

©2022 GPlusMedia Inc.

17 Comments
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How long will economist hold fast to the idea that growth is necessary? Growth can't be continued indefinitely. Sooner or later you run against the limits (you only have one earth) and then things start to happen. A glance at oil-prices would teach you a lot about the current economic crises. And no, oil price is not inflated. On the contrary, oil is still horribly cheap. You can buy a liter of fuel that's almost as cheap as a liter of water.

1 ( +1 / -0 )

This is one of the most poorly written articles I have read in a long time. Gosh forbid you try to follow the writer's point, and his conclusions are asinine. For example,

"Also, given the huge economic crisis generated by the tsunami and ongoing radiation crisis, it is difficult to imagine America coping with such a strong currency despite all the problems which are happening in Japan."

I can only speculate what this means, but let's take one phrase "it is difficult to imagine America coping with such a strong currency". For nearly my entire adult life the dollar was strong and manipulated without mercy by Japan to hollow out US manufacturing. China is now playing that game against Japan. Payback sucks.

Another example: "Currently, Japan’s debt ratio is the highest in the world but nothing is clear in Japan because this nation still intervened and offered a helping hand to the European Union. Also, Japan’s unemployment rate remains relatively low when compared with the speed of unemployment in America and in other nations where it is even higher, for example, Spain."

Still can't figure out any point to his article, but there seems to be some insinuation that in spite of Japan's super high debt ratio, there will not be hell to pay. I beg to differ. Once the retirees in Japan start demanding their money from the Post Office savings accounts, the government bonds invested in by the Post Office bank will have to be sold and foreigner will be the buyers of Japanese debt. The day of reckoning may not be here yet, but it will be worse than anything going on in the US or Europe right now.

3 ( +3 / -0 )

So as I understand it Japan loans out money they borrowed themselves.

0 ( +0 / -0 )

So as I understand it Japan loans out money they borrowed themselves.

I think almost all major economies are doing this.

0 ( +0 / -0 )

Reckless is spot on: this is a sloppy article. The writer is making out as if Japan wanted to help out the poor EU purely through a sense of altruism, whereas the Americans didn't want to "lend a hand". Give me a break. The Japanese have yet to face up seriously to tax reform they NEED if they are to cope with the enormous government welfare payments in the next decade. Unless taxes go up significantly (as they sensibly should), public debt will continue to increase year by year. Throw interest on top, and you have a problem spiralling out of control.

0 ( +0 / -0 )

“They are living like parasites off the global economy..."

"Parasites"....lol, well stated Putin!

-6 ( +0 / -6 )

Reckless...your point is also, what?

Twenty years of negative economic growth in Japan on the whole - unemployment is much lower than America but did America have 20 years of negativity?

Look at Spain, Greece and other convulsions. Japan remained steady and despite countless problems it is Japan which is trying to help Europe...not America.

Did you see tens of thousands of individuals losing their home in Japan like what happened in America in such a short time, added to unemployment rises and social issues related?

Scare mongering all the time about Japan and so forth.

China is unhappy with America and Russia - and a host of othe nations. And what is America doing to stabilize the dollar?

-1 ( +1 / -2 )

I agree with clive1. Japan is steady, stable, and reliable. America and Europe are a mess, and China is in a massive bubble. Japan gets my vote any day.

-2 ( +0 / -2 )

It seems apparent to me that the reasons Japan has low unemployment are: A low birth rate leads to a population in decline. The workforce is rapidly aging and retiring. So there are plenty of jobs and not enough young people to fill them. A nationalistic immigration policy that won't let anyone in to compete with native Japanese for available jobs. And a pay to go back home and work in your own country program that shipped many foreigners out after the disaster. Low unemployment is a good thing economically, but the underlying social causes for this are not so pretty.

0 ( +0 / -0 )

Japan is steady, stable, and reliable.

Are you seriously saying the Japanese economy is doing OK? Or are you only joking? 20 plus years of deflation, mind-boggling public debt and interest growing all the time, a dwindling workforce, a yen that is crippling the export industry - and above all, a lack of will/ability to address the chronic problems here ie a need to reform the tax system. Where on earth is the money coming from to pay for all the retirees here in the next few decades? There are no young people here - and no resources to dig up to pay for the debt!

1 ( +1 / -0 )

Uh...Burakumin, do you know anything about Japan? The Japanese government has over 700 trillion yen in assets and the net savings of the Japanese populace is greater than the US GDP. The West depends on economic bubbles that eventually bust and take down the world economy, while Japan depends on steady, although low, growth.

Population decline is a good thing. Look at what mass immigration has done to the West. At most, the 65+ age-group will reach 40% of the Japanese population and then decline. Population aginf is happening everywhere, even in China in India, we, as a planet, just have to find ways to deal with it/

0 ( +0 / -0 )

Population decline is a good thing. Look at what mass immigration has done to the West.

You have to look at the demographics though. Japan is a manufacturing nation - with the oldest population on earth where are the workers coming from? You would have a rough time presenting your argument to the business organisations in Japan! The BIGGEST and most chronic problem facing Japan IMO is the lack of will to change. The tax system here drastically needs to be revamped.

Look at what mass immigration has done to the West.

Yes - created a robust and dynamic workforce that has built some of the biggest economies on earth. In my country we rely on the immigration of skilled workers to keep our economy ticking along strongly. I hope you are not somehow twisting this into an "immigration is bad" thing...

0 ( +0 / -0 )

The demographic picture will eventually turn around, and technology will lead to people leading healthier and more productive lives as they age. I have more faith in Japan changing then I do America, the UK, or most other nations.

Mass immigration is a failure. It just creates cultural conflict, disunity, and political correctness goes crazy so people don't get offended. Not to mention that foreigners steal jobs from native workers. Japan should NEVER allow mass immigration.

-2 ( +0 / -2 )

Not to mention that foreigners steal jobs from native workers

Where I'm from - Aus - foreigners do jobs that native born people simply refuse to do. They are not stealing anything, in fact we are struggling to attract enough of the type of workers we need.

0 ( +0 / -0 )

BurakuminDes...exactly, the economy over the last 20 years was not so good. Low groth to stagnation and back again but the yen is really strong and it is not all about carry trade.

Other nations would be in dire straits and unemployment would be much higher; the currency would lose its strength after twenty years of negativity (on the whole) and existing companies that survived the initial period would find it hard to survive the high valued currency..........but Japan keeps on ticking and not only this, is helping the EU and other nations despite everything.....and even helping after the crisis of March 11.

It seems like an enigma..........and look at the social tensions in the UK, Greece and other nations.....but where are the social tensions in Japan?

-1 ( +0 / -1 )

Yes, the fantastic Japanese way of life. A place where a middle class family lives in 60 m2. Or, you can buy a house and 1.5 hours from Tokyo and spend 3 hours a day on a train. Great.

In the US the housing bubble and greed caused everyone to lose their homes. fools who could not afford to buy million dollar homes bought to either live in or flip. then, cried when they forclosed.

Let's see how long Japan can keep it up with the strong yen. already, I heard the job market is horrible in msot sectors.

0 ( +1 / -1 )

The Japanese way of life is fantastic, much more so than the Western life of looting and burning down buildings. Japan will adapt and survive no matter what. The West is dying. The yen is strong because it is seen as a safe-haven against the printing presses of America and the Eurozone. The West will collapse and Japan will still be around.

-1 ( +0 / -1 )

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