July 21, 2011: Public debt and the elephant in the room

[ZenGum]

Here is a graph that appeared in the media recently. I'll show two versions.

The horizontal axis shows total government debt.
The vertical axis shows last year's budget defecit, i.e. how fast debt is growing.
These are all done as a percentage of GDP so it fairly accurately represents each nation's ability to deal with this debt.

The bottom left corner is good - low debt, small defecit. The top right is bad.

Here is the trimmed version, without the elephant.



So there's the US - high deficit, serious total debt; the European debt - notice Greece with its very large total debt and serious defecit. There is China looking pretty good (although even here, there are questions) and Australia, so far kept healthy by China's demand for minerals.

Here's the elephant:



Japan is still the world's 3rd largest economy, has the most aged population, a shrinking labour-force, and minimal natural resources. Yet, no-one is even talking about this!

You work it out. Me no like.

[Aliantha]

It's too scary to think about let alone talk about.

[footfootfoot]

I don't think re-opening Manzanar is the answer.

[CaliforniaMama]

This is not a pretty picture.

[infinite monkey]

Sure it is, you're just not looking at it right. It's a constellational dinosaur!

[Spexxvet]

Godzilla!

[glatt]

If only. The Japanese have a long history of dealing with Godzilla. They know how to do it. But this debt thing is going to bewilder them. And with the recent tsunami, nuclear disaster and energy loss, they are going to have a tough time of it. At least their spirits were lifted from that soccer game.

[classicman]

Yeh they seem like the next domino to fall.

[Wombat]

That's one of many reasons we're called The Lucky Country :-)

[footfootfoot]

Originally Posted by glatt

If only. The Japanese have a long history of dealing with Godzilla. They know how to do it. But this debt thing is going to bewilder them. And with the recent tsunami, nuclear disaster and energy loss, they are going to have a tough time of it. At least their spirits were lifted from that soccer game.

yeah, casting my mind back to the mid 80s when I took Japanese History I remember something about how the financial cluelessness of the ruling class led to the selling of family names to merchants who then rose to respectability.

Despite being good at math...

[xoxoxoBruce]

They still hold over 900 billion in US treasury securities.

[ZenGum]

No offense intended, but having a large amount of their reserves denominated in US dollars would be much more reassuring if you guys would quiet printing so many of the little suckers.

[Spexxvet]

Originally Posted by xoxoxoBruce

They still hold over 900 billion in US treasury securities.

That's not a very safe investment, these days.

[ogwen69]

Hasn't Japan been in recession for decades or something?

And interest rates on savings negative?

[ZenGum]

Pretty much, yes.
Just going on memory here but since 1990, roughly, over that period:
interest rates have been between 0 and 1%
GDP has not grown
The stock market has not risen
all that debt has has been run up
unemployment was in the 2 to 3 % range.

Just remembering, though, what caused all this. The 1980s in Japan saw a bubble in the stock market and a big bubble in ... residential real estate. That's uncomfortably familiar.

IMHO, though Japan may have reached the "steady state" economy. [Grandpa rant] way back, Adam Smith founded economics, and he said: go forth and grow! And so the people grew their economies.
Then Marx said, this growing can't go on forever, it must self destruct. But it seems that he was premature, in that capitalism hasn't gone yet, although it gets a bit crook at times. Maybe he underestimated how far technology could go.
But even so, in terms of either finite natural resources or an approach to the maximum possible labour efficiency, economic growth must eventually stop, and yet not necessarily lead to the collapse Marx predicted, if it can get to a "rich enough" situation first.
And I think that Japan may have reached that state, the "steady state" economy. It doesn't need to grow any further. If they'd realised that 20 years ago, they wouldn't have thrown all that money around.