Japan must hike sales taxes again to conquer debt: IMF

I guess cutting spending is out of the question?

Looks as if IMF is without business and eager to grab a potential client Japan.

"The IMF report said the country had little choice."

Why? Japan has proved over the years that it can indeed engage in large-scale stimulus with no risk. For the last few years, all the IMF's warnings of higher bond yields, destroyed investors' confidence, etc., etc have been....wrong. Wrong and wrong.

Actually worse than wrong, since the opposite trends occurred! Japan got lower rates and its currency got safe-haven status. Too funny.

Why? Japan has proved over the years that it can indeed engage in large-scale stimulus with no risk. For the last few years, all the IMF's warnings of higher bond yields, destroyed investors' confidence, etc., etc have been....wrong. Wrong and wrong.

The main buyers of JGB's are institutional investors in Japan, namely large Japanese banks which have invested much of their depositor's money in them. The government and these investers have colluded together to keep bond rates (and other interest rates) low, as many of the bank's customers are large debt holders, and the low rates make it easier to get loans. Government officials can count on a fat job at one of these banks or companies when they retire. Since Japanese bonds are not sold to as wide a market as other bonds, they are not a good indicator of economic conditions. Had JGB's been widely sold on the international market, Japan's debt vs GDP level would certainly have never come close to 200%. Investors do not have any confidence in Japan, which is hy Abe has been working so hard to attract them. Japanese consumers have no confidence, this is one of the reasons the birth rate remains so low.

Japan cannot continue to engage in large scale stimulus without risk. The time is quickly approaching that the total number of JGB's issued will exceed the amount of cash assets held in the domestic banks, once this threshold is passed, Japan will by definition be insolvent. Late last year the national debt hit 1000 trillion yen, the total number of assets held is 1350 trillion. At he current rate of spending and bond-buying, there isn't much time left before the lower number catches up with the higher one.

Japan must find a way to make the economy grow, it must not continue to increase taxes on a shrinking pool of taxpayers, this will only speed up the decline. The population is declining mainly because of Japan's high cost of living. Taxes and other costs must be reduced, not increased. Once the cost of living reaches a level which is determined by the people, and not by price-fixing practices, tariffs, or extortionate tax levels, the population, and growth, will increase.

The IMF also said the central bank could hold off further monetary easing measures for now, after it launched an unprecedented asset-buying plan last year that was similar to the Federal Reserve’s quantitative easing programme.

Jeff -- Did you bother reading the above, or understanding it. All the J-Gov did is buy down interest rates asset-buying and monetary easing program. So what? The fact is that the absolute amount of the debt, and the accompanying carrying costs, continues to rise. It is now over 23 trillion yen or about 25% of the total budget. Say what you want, but that cannot be sustained with a shrinking/aging population.

"Did you bother reading the above, or understanding it. All the J-Gov did is buy down interest rates asset-buying and monetary easing program. "

Because it can. Many others cannot.

The IMF is just another corrupt meddling pile of self centered narcissists, where were they prior to the 2008 financial crash ?

Japan does need to undertake some serious reforms but does not to need to listen to the IMF.

Japan cannot continue to engage in large scale stimulus without risk. The time is quickly approaching that the total number of JGB's issued will exceed the amount of cash assets held in the domestic banks, once this threshold is passed, Japan will by definition be insolvent. Late last year the national debt hit 1000 trillion yen, the total number of assets held is 1350 trillion. At he current rate of spending and bond-buying, there isn't much time left before the lower number catches up with the higher one.

Quick question. Where did the money go? Please bear in mind that Japan is the largest net creditor in the world for 23 consecutive years with 9.7% increase from last year.

Why not give government officials a pay cut or cut their lavish benefits?

Funny how they were showing people all going out to by new refrigerators before the previous tax hike. Some quick research showed me the new models come out in the fall, and the price drop before that would be much bigger than the 3 percent increase due to tax.

The IMF is just another corrupt meddling pile of self centered narcissists,

Or in a word, "globalists".

The IMF is the "global whisperer" and countries that follow them are just dogs on a leash.

Chase that ball! Start that war! Grow grow grow!

IMF has destroyed many countries in the past with their "suggestions" which were proven wrong, not to say intentional. If Japan wants to follow the blame its them. On the other hand maybe they just can not do either way cause they are gonna be threaten from the 3 big credit rating agencies. Which its just happens to be all USA companies...

Because it can. Many others cannot.

Jefflee -- great response. And exactly where did you get your degree in economics? Thanks but I'll bet on the IMF's view before your opinion.

Jefflee -- great response. And exactly where did you get your degree in economics? Thanks but I'll bet on the IMF's view before your opinion.

Economics? No, simple basic accounting. Net sum zero game on Japan's balance sheet.

http://www.boj.or.jp/statistics/sj/sjexp.pdf

Quick question. Where did the money go? Please bear in mind that Japan is the largest net creditor in the world for 23 consecutive years with 9.7% increase from last year.

Japan cannot liquidate these foreign assets, partly because they have a collateral effect. Also, selling these assets would quickly drive their value down. The world's economies are none-too-rosey at the moment, it is highly unlikely these assets could be sold for anything near their current face value. These assets were accumulated over time as investments, when it was assumed there would be significant worldwide economic growth. This has not been the case. As countries around the world print money or buy their own bonds to maintain spending or to "encourage growth", there is a glut of assets available, hence the high current stock prices. If Japan or other large debtholders try to cash out, this will pull the plug on the value of these assets. In other words, Japan's large holdings of foreign assets are essentially of little ready value. What value does something have if you can't sell it?

Japan cannot liquidate these foreign assets, partly because they have a collateral effect. Also, selling these assets would quickly drive their value down. The world's economies are none-too-rosey at the moment, it is highly unlikely these assets could be sold for anything near their current face value. These assets were accumulated over time as investments, when it was assumed there would be significant worldwide economic growth. This has not been the case. As countries around the world print money or buy their own bonds to maintain spending or to "encourage growth", there is a glut of assets available, hence the high current stock prices. If Japan or other large debtholders try to cash out, this will pull the plug on the value of these assets. In other words, Japan's large holdings of foreign assets are essentially of little ready value. What value does something have if you can't sell it?

Wrong answer. I should of linked you the balance sheet before(see above). This is the reason why JeffLee and I are having be posting for years that your Kyle Bass fear mongering is simply not correct.

Sounds like a great way to kill the golden goose.

Instead, corruption and spending need to be reigned in. No more golden parachutes. No more semi-retirements. No more needless government contracts.

On the article,

“Given very high levels of public debt, implementation of the second consumption tax increase is critical to establish a track record of fiscal discipline,” it said.

The IMF is right that Japan does not have a track record of fiscal discipline, but their suggestion is like saying that a person who consumes 40 donuts per day instead of 50 donuts per day will have established dietary discipline.

Even with a further tax hike, government spending completely out of control and government debt will continue to increase.

nigelboy,

Japan is the largest net creditor in the world for 23 consecutive years with 9.7% increase from last year.

Certainly when I think of Japan as a single entity, that's a factor in it's favour, but what will be the impact of Japan's demographics on those assets and income derived from them going forward, and to what extent do those assets and income contribute to resolving the government's indebtedness and massive bugdet deficit?

marcelito,

How about the govt. just stops wasting trillions on inflated white elephant public projects

It's a step in the right direction, but even if they did that the government would still be in the hole. The budget is circa 90 trillion, they are short circa 40 trillion, and white elephants don't make such a significant percentage of that.

Certainly when I think of Japan as a single entity, that's a factor in it's favour, but what will be the impact of Japan's demographics on those assets and income derived from them going forward, and to what extent do those assets and income contribute to resolving the government's indebtedness and massive bugdet deficit?

When people/private entity starts to increase spending/investing=banks lend more, buy less bonds=bond rates higher=but the revenue from tax increases-->less reliance on bond issuance by the government.

Defalationary spiral was acting counter to the above.

nigelboy,

I'm skeptical. Will the numbers really play out in a favourable sequence for government finances, and will spending and investment by the private sector really increase?

I've seen BOJ board members including the governor, JGB primary dealers and the like all expressing concerns about the fiscal situation. Are they all nuts?

I'm skeptical. Will the numbers really play out in a favourable sequence for government finances, and will spending and investment by the private sector really increase?

Yeah. Where else can the money go?

never forget that the IMF is a corporation and like all corporations it psychopathically seeks profit. Since it profits from the economies of almost all countries of the world of course it's interested in promoting any raising of taxes.

That probably is where most tax dollar actually go - paying back loans to the IMF

I'm not an economist, but this is what I've learned these past few months. Read "Modern Monetary Theory" if you're interested, but here's the summary:

Debt is nothing but government printed money ends up in people's savings accounts. Increasing sales tax is just forcing the populace to return those "debt" by taking out money from their saving accounts back to the government. It's simple government accounting balance sheet. A little bit different than household accounting, in which household can't print money.

Japanese government as a sovereign that issues yen by its own doesn't need to worry too much about "debt", especially Japan has a strong manufacturing industry, whose products are always in demand world wide. So when they need money, they just print more. Greece went bankrupt because it couldn't issue its own money. If you can't issue your own money, then household economy applies to you. If you don't earn income, you go bankrupt.

Don't take my word for it, go learn some more, there are things the scaremongering popular media don't tell you about.

The bankers will have their way.

The never-ending government profligacy more than negates any possible, perceived, or actual revenue increase on the heels of a consumption tax increase. As far as IMF urging higher taxes in Japan(lower in comparison to the EU fifedoms); Misery loves company.

When people/private entity starts to increase spending/investing=banks lend more, buy less bonds=bond rates higher=but the revenue from tax increases-->less reliance on bond issuance by the government. Defalationary spiral was acting counter to the above.

Wrong. Private entities and people can not and will not increase spending and investing when the population is decreasing as rapidly as it is. With fewer people being born, there are fewer customers for companies to sell to, and fewer taxpayers who can pay tax. Deflation is the direct and entirely normal response to the current economic environment.

That the BOJ or Abe think for a moment that they can cause economic growth and inflation in such a declining market is absurd. In fact, it borders on lunacy.

Past practices of protecting domestic companies by enacting tariffs caused goods to become more expensive than they would have naturally been. This lack of foreign competition also made it easier for domestic companies to collude to fix prices, further driving up costs. The close relationship between Japanese financial institutions, large companies, and government officals has further led to the suppression of foreign competition in Japan's retail and financial markets.

The effect of all of these has driven up the cost of living to unbearable heights, and this is the primary cause of the declining population, and the declining domestic economy. We can't forget that domestic consumers buy more than half what Japanese companies produce. With domestic sales decreasing in step with the population, and foreign sales threatened with aggressive competition, there is no prospect for Japanese growth.

Deflation is necessary for the costs of goods and services to fall to the natural level which people can afford to pay. This is not a bad thing, deflation increases the value of our pay, and makes goods more affordable. People can buy more, and afford to feed and raise children. As they do, inflation once again begins to occur. The only positive form of inflation is that which is caused by excessive demand, because this type of inflation causes production to increase to meet the demand, which in turn causes economic growth.

For Japan's debtors, primarily the government and large companies, inflation is necessary to keep their debts manageable. 2% annual inflation results in a 2% reduction in debt, without the goverment having to pay a single yen. 2% deflation causes a 2% increase in the debt, and greatle exacerbates debt servicing costs, which now make up 27% of all revenue collected by the government.

To address the debt problem, Japan is going to have spend less, not tax more. Japan is going to have to find a way to reduce the domestic cost-of-living if it wants to stabilize the population, and return to growth. Japan needs to open it's markets, eliminate tariffs, end price-fixing, and pass a balanced-budget amendmant. Japan needs to realize that the glory days are over, and that it is necessary to face reality, and make the best of it.

Japan is sitting on 1 quadrillion yen in cash. Yes, you read that right. That money is just sitting in the banks. Old folks better start using that money or else the government will get a huge chunk of it through inheritance tax. In fact the government created a new law saying that grandparents can give a certain amount of money per year tax-free to their grandkids for "education." 600 billion yen has already exchanged hands and the majority of that money has been spent.

kibousha, nigelboy,

I believe you are both saying the same thing, that is the yen remains accounted for in the Japanese system, and thus the government always has a captive audience to buy it's debt, and the money just goes round and round.

The Japanese system however is integrated with the rest of the world, and the value of the yen fluctuates. People can save and invest using foreign currencies.

If the positive effects of the yen decline results in improvements to Japan's fundamentals before Bad Stuff happens then things may work out fine. But I don't see any guarantees of a positive sequence of events.

there are things the scaremongering popular media don't tell you about.

BOJ board members including the governor and even the JGB primary market dealers (who are obliged to come up with bids for newly issued JGBs) have expressed concerns about Japan's fiscal situation, so this is hardly sensationalism.

Wrong

All that essay and you just managed proved that you couldn't read the balance sheet I linked you. No matter what your scenario is, a yen denominated JGB issuance and the purchase/ redemption of it is in Yen. Net sum zero on Japan ( people, corporations, government) balance sheet is virtually a net sum zero scenario.

Net sum zero on Japan ( people, corporations, government) balance sheet is virtually a net sum zero scenario

So long as the people and corporations are happy with this net sum zero it sounds wonderful.

Bringing in more tax revenue probably wouldn't do anything to reduce the deficit right now: At first glance, this seems counter-intuitive, doesn't it? But, we don’t have a revenue problem in this country; we have a spending problem.

nigel, some people don't like hearing the truth

a 2% increase will actually feel like nothing at this point. when they raised the consumption tax to 8%, it actually raised prices by about 8% since lots of mom and pop shops simply began adding that figure.

btw, you finance guys must have a lot of time on your hands, eh?

Japan's large holdings of foreign assets are essentially of little ready value. What value does something have if you can't sell it?

sngetsu03, Assets includes interest, dividend, profit, etc. Those are cash, you know.

Japan needs to realize that the glory days are over, and that it is necessary to face reality, and make the best of it.

Japanese would never think it had any glory days, if anything maybe Edo era? I think you are preaching what you should be doing.

Well, we can be bleak or optimistic about Japan in the short term, but it is true that Japan's situation is not any better and even though Japan's debt is almost all in country, there will come a day when the bubble bursts.

Raising taxes is a pretty myopic and dubious way of solving the problem, though. I suggest trying to cancel the corporate tax cuts, or at least turning it into a subsidy contingent on companies taking demonstrable measures to improve standard of living (such as by increasing pay or actually trying to respect the 40-hour week). If Japanese companies and government wish to keep things expensive, that's their choice as long as the living standard increases, which can be done by handing out more pay.

nigel, some people don't like hearing the truth

Truer words have never been spoken. Here are a list of truths, dispute them if you may.

Japan's national debt is near 250% of GDP, the highest of any developed nation, and higher than many developing nations.

Japan's spends a full 27% of all revenue collected to service this debt.

Japan's population will decline by one-third by the middle of century, and tax revenue will decline even more.

While rating high in gross income, Japan rates third-from-last in disposable income among developed countries.

Japan's debt will soon surpass all cash assets held by the various Japanese banks.

btw, you finance guys must have a lot of time on your hands, eh?

When I get tired of scrolling down lists of figures for hours on end, I can come here and rant. I spend my day turning yen into dollars, a few of which I get to keep. Were it not for the klutzes in Kasumigaseki, and at the BOJ here in Nihonbashi (which I can see across the street from my office as I write), I might make more dollars, and my Japanese counterparts might make more yen. These we could spend to better care for our families, invest, or otherwise help the economy grow.

Japanese would never think it had any glory days, if anything maybe Edo era? I think you are preaching what you should be doing.

Remember the "Bubble Era" when Japan's economy flirted with becoming #1 in the world? And when the real estate value of central Tokyo was valued higher than the lower 48 states of America combined?

sangetsu03, Assets includes interest, dividend, profit, etc. Those are cash, you know

Cash does not have a fixed value you know, it's value is also rated by supply and demand. There is an abundance of cash you know, which is why the world's stock markets have exploded while international GDP growth has remained nil. The moment Japan starts to exchange or sell it's balance of foreign currency, bonds, notes, etc, their value will fall faster in value than MH-17 fell from the sky.

The IMF should really look at their philosophy of the world. and shut their yaps. Anyway, Japan raises sales tax with one hand and then prints money and issues debt with the other. how does that help?

Sangetsu Main buyer of new issue JGBs is the BoJ

Sangetsu Main buyer of new issue JGBs is the BoJ

Who else would buy them?

Too bad I can't create and sell bonds to myself to increase my ability to spend other people's money.

Indeed. JGBs have managed to hold value for far too past their sell by date. The dam will have to break eventually - wanna be short when it does. i agree that maybe cutting spending on crummy projects is a good place to start cutting debt. Everyone said cutting spending in the UK would be a disaster and look at how well things (comparitively) are going there.

You what headlines I'd like to read? "Japanese government finally decided to reel in out of control government spending, corruption and white elephant construction projects!", "Japanese government decides to raise taxes to 50% on tabacco and brand name goods", "Japanese government demands cops start ticketing drivers for speeding, not stopping at crosswalks, driving like idiots - money to be used to pay off the national debt!" and "Japanese housewives will no longer be given a free pension and health care! Money saved with be used towards health care, schools and debt!" A girl can dream.

When I first came to Japan, I thought that the job market was its strong point, paired with good salaries & benefits. Oh, how I was wrong... Salaries have gone no where in a decade and things seem to be only getting worse.

IMF is called a "colony" of Japanese Treasury Ministry. It sends an army of staff to the "colony" to manage everything. Certainly, the report was written by Japanese Treasury Ministry to promote its agenda of collecting more tax. More tax means more government spending, and more government spending means more kickback into their pocket.

An IMF report is a serious thing for a debtor nation. It means nothing to the world's largest net creditor nation.

Looks pretty good tmarie, but I think there are better ways to reform pension and health care spending than just cutting housewives off the grid.

If you look at a break down of who is loaded up with financial assets in Japan, it's the over 60's. This segment of the population has more than two thirds of the wealth. It's irrational for a government as indebted as Japan's is to be distributing extra money to this rich segment of the population by way of pension payments. I know people will say "oh but the governments of the past made a commitment to them!" but is it worth risking the ruin of your country to keep running a pension scheme that these days looks like a ponzi scheme?

Remember the "Bubble Era" when Japan's economy flirted with becoming #1 in the world? And when the real estate value of central Tokyo was valued higher than the lower 48 states of America combined?

Japanese don't look at those days as "the glory days". I've never heard Japanese say that, but maybe "crazy" or "insane" days.

The moment Japan starts to exchange or sell it's balance of foreign currency, bonds, notes, etc, their value will fall faster in value than MH-17 fell from the sky.

The exhange rate is not changing like that. I'm talking about interest of bonds, dividend of shares, profit of businesses, copyright money, tax, etc come into Japan, and become assets.

CH3CHO

I took a look at the report on the IMF homepage, and it was written based on discussions between the IMF and Japanese officials. Pleased however to see there were recommendations in there for reforms that missed getting mentioned in the article above. Talk is cheap though and Abe needs to start executing.

An IMF report is a serious thing for a debtor nation. It means nothing to the world's largest net creditor nation

I beg to differ, Japan is a rich nation but its government stands in stark contrast.

Taxes up, salaries down, I'm out.

"Japan is a rich nation but its government stands in stark contrast."

Wherever there's a deficit (GOvt in this case), there is an equivalent surplus somewhere else. Figure out where it is, grasshopper, and you shall be enlightened.

"Japan’s staggering debt"

If the government hadn't spent around 100 trillion yen every year, there wouldn't be this staggering debt.

I don't consider Japan as a rich nation because of huge debt.

there is an equivalent surplus somewhere else.

You mean like buildings? They requre a lot of money to maintain.

If you look at a break down of who is loaded up with financial assets in Japan, it's the over 60's. This segment of the population has more than two thirds of the wealth. It's irrational for a government as indebted as Japan's is to be distributing extra money to this rich segment of the population by way of pension payments. I know people will say "oh but the governments of the past made a commitment to them!" but is it worth risking the ruin of your country to keep running a pension scheme that these days looks like a ponzi scheme?

Indeed and we are paying half of that age group a pension and giving them health care even though most never paid one yen into the system. I don't think we could do anything about it at this point. Frankly, I would love a "you didn't pay so you get nothing" rule to come into play but that would be cruel and we'd only have to pay in welfare checks. Plus, I don't think it is fair to take away but folks have paid into. What I would love is for Japan to get rid of their pension system because it is clearly broken and I would rather invest my money elsewhere but let's be honest, your average Taro (or Tom is you want to talk about other countries as it isn't just Japan) isn't smart enough with money to be able to look after themselves in the long run so... we're stuck with a broken system that doesn't have the population to support it - hence my suggestions. Stop allowing any woman under the age of 35 or 40 to mooch off the system. Either they can pay or their husband's can pay for the 25 years kokumin nenkin and they they the minimum. There is no reason why the rest of this country should be supporting a large number of able working people who decide not to work. More so when most families can afford to pay. That being said, Abe doesn't have the balls to push it through even though there has been talk. It makes too much sense. Best to raise the taxes and kill the working poor and middle class.

Japan's debt will soon surpass all cash assets held by the various Japanese banks.

No. Read the balance sheet I linked. If you can't comprehend them, simply just say so and ask. (Figure 1-1)

On the right side are financial assets held by Japanese households, non financial entities, and the government. In the middle is the financial entity. On the left are financial obligations/debts held by Japanese households, non financial entities, and the government.

They don't "dissappear". It simply credits one and debits another.

"They don't 'dissappear'. It simply credits one and debits another."

So basically, you're arguing that Japan's debt doesn't matter because it's mostly internal, i.e. it's like debt among family members? Well by that logic, the national debt of the USA doesn't really matter either because (contrary to popular belief) it's mostly internal as well.

So basically, you're arguing that Japan's debt doesn't matter because it's mostly internal, i.e. it's like debt among family members? Well by that logic, the national debt of the USA doesn't really matter either because (contrary to popular belief) it's mostly internal as well.

If it's in the 90 percentile, yes.

The notion that the government budget has to be balanced "tax revenue=government expenses" is simply not possible for their involves long term public infrastructures (for instance) that should be paid over time are lump sum government expenses so there already going to exist a short fall.

"If it's in the 90 percentile, yes."

OK, but this sort of wishful thinking relies on a huge assumption: That Japanese government officials can tell themselves, "We have a national debt that is equal to more than twice the GDP of the country, but most of that is internally owed to Japanese investors and individuals and so...we can confidently assume that THEY don't have a problem with this state of affairs and trust us."

Is this assumption about the complacency and docility of Japan's people in the face of a mostly internally held national debt of more than 1,000,000,000,000,000 yen one that Abe & Co. can really make?

OK, but this sort of wishful thinking relies on a huge assumption

Perhaps you need to get off on your mindset that GDP is some sort of "repayment" ability of the JGB.

Why would any person or institution buy a Japanese bond, when the Japanese government is doubling the money supply? On the other hand, if the government doesn’t succeed in increasing real GDP or inflation, then the debt will continue to compound and interest expenses will continue to rise. At some point, the bond market will inevitably revolt. Government intervention is limited. The government needs a low yen for import prices to rise and induce inflation. My bet is that the government will get more than it bargains for. That is, a debt crisis will result in the yen spiralling a lot lower than it wants, and quickly.

Increasing nominal GDP is easier said than done since Japan that’s been going through two decades of deflation. The current nominal GDP is at the same level as it was in 1995. The J-government is trying to lift nominal GDP by increasing real GDP and inflation. Real GDP is a function of population growth plus productivity growth. Japan has a declining working age population, which makes the task extremely difficult. With real wages going nowhere and with a new consumption tax hike, it doesn’t make for a bright picture.

Why would any person or institution buy a Japanese bond, when the Japanese government is doubling the money supply? On the other hand, if the government doesn’t succeed in increasing real GDP or inflation, then the debt will continue to compound and interest expenses will continue to rise. At some point, the bond market will inevitably revolt.

None of which happened or about to happen despite almost a decade of "200% of GDP" chants.

"You mean like buildings?"

Nope. i mean the private sector. The bigger the deficit in the public sector, the higher the surplus in the private sector and international sector. Since the international sector is so small in Japan's case (in contrast to Argentina or Greece), Japan's private sector is holding the money.

The solution is straightforward: remove funds from the private sector and hand them over to the gov't. But doing that would be stupid given, the low-growth post-2008 conditions.

"So basically, you're arguing that Japan's debt doesn't matter because it's mostly internal, i.e. it's like debt among family members? Well by that logic, the national debt of the USA doesn't really matter either because (contrary to popular belief) it's mostly internal as well."

Bingo! You get it. You might want to ask why US treasuries, the US dollar and the yen continue to be such popular and reliable instruments among global investors. Part of the answer is that in the US and Japan case....DEFICITS DON'T MATTER. In other words, these countries can meet their obligations by merely moving numbers around a spreadsheet, unlike Argentina and Greece, who need to come up with other people's money.

JeffLee Aug. 02, 2014 - 07:37AM JST Part of the answer is that in the US and Japan case....DEFICITS DON'T MATTER. In other words, these countries can meet their obligations by merely moving numbers around a spreadsheet,

The spending of today is our burden for the economy performing at a much slower clip thanks to the political class extracting limited capital from the economy only to spend it in ways that make us worse off. Government spending is our economic ball and chain. Considering future generations, they’re lucky in that if what the worriers foretell is true, interest payments will gobble up limited federal revenues at which point the federal government will no longer be a source of employment for so many Americans, will no longer wreck the lives of other Americans with programs that make them dependent on handouts, plus military will no longer have bases in 175 countries around the world. Assuming spending and deficits today wreck the ability of the federal government to spend irresponsibly tomorrow, we’ll be doing future generations a favor.

As for the bill they’ll be handed, that’s not the burden. In truth, the burden left on future generations will be a much less evolved economy in terms of technology, the ability to cure fatal diseases, and the ability to employ them in as specialized a manner as possible. Deficits can be financed as we all know, but growth lost is just that. Future generations will inherit a less evolved economy because we let politicians from both political parties waste so much of our growth capital. Sorry, but the latter’s true. If readers disagree, please find me an example of a vibrant company that became that way without investment.

of today is our burden for the economy performing at a much slower clip thanks to the political class extracting limited capital from

Why are you copy/pasting Forbes article and passing it off as your own? Why are you butchering the said article by pasting those that conveniently support your position when the whole article basically debunk the Hysterics behind the budget deficit?

"Government spending is our economic ball and chain."

No it isn't. When Reagan gave the Pentagon - one of the world's biggest public-sector institutions - a trillion dollars of govt money and when the Gipper engaged in unprecedented levels of deficit spending....the US economy boomed. Remember?

Austerity is our "ball and chain."

Another hike?! The stores and malls will be empty in no time!

No it isn't. When Reagan gave the Pentagon - one of the world's biggest public-sector institutions - a trillion dollars of govt money and when the Gipper engaged in unprecedented levels of deficit spending....the US economy boomed. Remember?

Reagan cut taxes as well, remember "trickle-down economics"? It was not the "trillion dollars" that Reagan spent which caused the economy to boom, it was reductions in taxes and regulation, as well as agreements like the "Plaza Accord" which put an end to Japan's currency manipulation, and helped level the international economic playing field. It was also Thatcher's privatization of British industry, which, up until she came to power, was 80% under state control. The taming of Japan, the liberalization of the British economy, and lowering the cost of doing business in America all contributed to the boom of the 80's. Had the trillion dollars not been spent, the boom would have been that much larger.

The Cold War was still being fought during the Reagan years, and it was Reagan's ability to outspend the Soviets that caused the collapse of European communism, and the tearing down of the Berlin Wall. Seldom has $1 trillion been better spent.

"... and it was Reagan's ability to outspend the Soviets that caused the collapse of European communism."

Hahaha! It was Gorbachev's sweeping market liberalization program and social openness initiatives. Once those were launched, they took on a life of their own -- at a grass roots level, military budgets be damned.. Gorby even told the East Germans well advance to go ahead and take their own road, to Adenauer's utter confusion.

The solution is straightforward: remove funds from the private sector and hand them over to the gov't. But doing that would be stupid given, the low-growth post-2008 conditions.

It would be stupid, but more because the politicians that go down that path will get themselves kicked out of office. (And so what other "solutions" are there? Given the choice of hoping for the best or doing some thinking, I choose the latter.)

these countries can meet their obligations by merely moving numbers around a spreadsheet

Until perhaps they can't.