JesusLovesJapan comments

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

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

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

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

GW is right. One of the things Japan can do to counter the yen's rise and fund recovery from 3.11 as well as pay off its debt is to print more Yen. Let's not talk about "hyperinflation" in a time of deflation. Many of the economic policies put forth in the past have been anti-inflation measures and of course, don't really work in a time of deflation! Japan's debt is different from that of Greece, etc. who owe money to foreign creditors. Japan's government debt is 95% owned by Japanese and is all in Yen. Unlike Greece, etc. Japan has the sovereign right to print its own currency and pay off its debt if it wanted to. And, with so much savings stored up in Japanese banks Japan can issue another 100 trillion yen in bonds and it will still not go into default. Hyperinflation won't happen in Japan, where production capacity greatly exceeds demand. What Japan needs and wants is a reasonable amount of inflation, and it has to increase the money supply to attain it.