What the heck? Why is Japan in so much debt??

[quinnox]

I was reading an article about the nuclear plants and saw this -

"Initial estimates put repair costs in the tens of billions of dollars, costs that would likely add to a massive public debt that, at 200 percent of gross domestic product, is the biggest among industrialized nations."

How did Japan get in debt so high? Aren't they supposed to be careful and frugal with money? I can understand the USA being in debt because of all the absurd defense spending, culture of borrow everything, and nonsensical tax structure to give rich as much as possible but what did Japan borrow all their money for?

[sharp_stick]

1. I see that you don't understand

much about Japan, the Japanese people or their economy if this surprises you.

The Japanese economy has been in trouble for years and this sure isn't going to help them.

[Name removed]

2. Deleted message

Sub-thread removed by moderator. Click here to review the message board rules.

[Kennah]

3. Start reading here

http://en.wikipedia.org/wiki/Japanese_asset_price_bubble

[taught_me_patience]

4. Years of Keynsian economics

A mistaken belief that government stimulus can jumpstart a moribound economy. They've tried repeated stimuluses to no avail.

[GillesDeleuze]

5. Stimulus then austerity. Stimulus then austerity.

Its like binge and diet. Not good for an economy.

[HughBeaumont]

9. Riiiiiiiiiight, because Friedman economics would have worked SOOOO much better.

I mean, looky how well that worked out for South America in the 70s and America since the 80s.

:eyes:

[Lydia Leftcoast]

13. Nope, that's the conventional wisdom, but having lived there in the 1970s

and visited frequently in the 1980s and 1990s, here's my take on it.

Japan in the 1970s was thriving on a mixture of large international corporations and small mom-and-pop retail outlets and factories. There were protectionist barriers, but plenty of American products were available. Still, it irked the U.S. that they couldn't set up KMarts and other big box stores, because of a limit on the size of retail outlets.

Meanwhile, due to lax regulations, speculators began driving up the price of Japanese real estate. Some of them were in league with the yakuza and used the yakuza to drive homeowners and rental tenants out of buildings so that the buildings could be torn down and the land resold at inflated prices. The country went on a building boom.

The banks knew deep down that the land and buildings were overvalued, but they kept two sets of books and bribed the government regulators to look the other way.

In addition, Japanese started coming here to study economics and earn MBAs. The Milton Friedman school was the prevailing orthodoxy, and of course, in that philosophy, limitations on economic activity are bad. Trade restrictions are bad. Government spending is bad. Furthermore, the MBAs came back with a single-minded devotion to the idea of the "lean and mean" company (i.e. fire everyone you can).

The real estate bubble, which was so extreme that some people were taking out two-generation mortgages to afford a simple suburban house (a DUMB move, in my opinion), collapsed at about the same time that the MBA types came of age, and the banks were left with a bunch of foreclosed, worthless assets. Several large banks either failed or were forced to merge.

But the MBA types were blinded by what they had learned in the U.S. and started laying people off en masse and cutting back on hiring young workers. Meanwhile, the small businesses, which otherwise might have absorbed some of the laid-off workers, were being squeezed by either high interest rates on loans or unwillingness on the part of the banks to lend at any price. This went on while the interest rates on savings accounts stood at zero.

As another poster above noted, the "stimulus" has been a stop and start affair. Just as it begins to work, the conservatives in government start yammering about the deficit, and they do dumb things like first instituting and then raising the consumption tax. In addition, Japanese corporations have started outsourcing employment to cheaper countries, further dampening employment opportunities.

Unable to compete with the big box stores (now legal), the old mom and pop businesses that provided livelihoods for generations of Japanese families, are being replaced by chains that pay minimum wage. For example, Tokyo used to be full of quirky, individually owned coffee shops that brewed an individual cup or pot from the beans of your choice, served it on fine china, and played the owner's choice of classical or jazz on the sound system. It's hard to find those anymore. They've been replaced by Starbucks and its imitators. Restaurants, drugstores, bookstores, and clothing stores are meeting the same fate.

But the attempts to stimulate the economy through infrastructure have left Japan with some spanking new infrastructure that makes us look downright shabby. Fly from Kansai Airport (the one that serves Osaka and Kyoto) to LAX, and you'll see what I mean.

[Hannah Bell]

17. +100. but i'd add to that; concerted pressure by the international financial

community for japan to open up its economy so international finance could game it. as they game everything.

[DeSwiss]

20. Years of capitalism. n/t

[bossy22]

6. Japan has a big structural problem

Japan's big problem is their demographics. They are rapidly aging and SHRINKING society. There population is set to decline by 10% over the next 30 years (unlike the U.S. which is slated to increase about 10% every 10 years). This means that economic growth is going to be soley determined by productivity gains- which have their limits.

But the reason why japan has so much debt now is because of a massive stimulus plan during the "lost decade" after the asset bubble burst.

[WhiteTara]

7. it began for them in the 80s with the S&L meltdown

they lost everything then and were unable to rebuild because they used the economic model being proposed here.

[Dappleganger]

10. ^^^^^This.

[Johonny]

14. That's pretty much what the above link says.

[northernlights]

16. You got it. it wasn't the stimulus. It was where the stimulus went...

to prop up "zombie banks" with political connections.

And a culture of employment for life became fire everybody, run a succession of skeleton crews into the ground.

And so on.

Sound familiar? It should. And it should scare the fuck out of you because our Hahvid MBAs is so smart they decided to pull the same fucked up shit here.

[wellst0nev0ter]

8. They Also Had Tax Cuts

Which apparently prompted the governor of Tokyo to say a couple days ago that the earthquake and tsunamis were a divine punishment for the selfishness of the Japanese people. Obviously he had to apologize for that comment.

[Xicano]

11. Propping up the U.S. Dollar is one cause.

Japan second only to China holds the most U.S. Securities. IMO they will have to sell a large amount of these off and who's going to buy them? Everyone else is wanting to dump the U.S. Dollar. So the way I see it the only buyer will be the FED, creating more inflation and devaluing the dollar further.

Its not like as if our dollar isn't dying anyway. Its already toast, its days are already numbered thanks to Wall Street and the banker cartel.

Well that's my opinion anyway. n/t

[dmallind]

12. "everyone is wanting to dump the US Dollar"

...jeez you'd have thought that would have shown up in the pricing of 10 and 20 year T-Bills then...but they still sell nicely at historically low interest rates. Which one is wrong - a DU poster or the global bond market?

[Xicano]

21. Sigh

http://www.youtube.com/watch?v=4n3g5lUgkWk#t=2m55s

World Prepares to Dump the Dollar

What do China, India, Brazil, Russia, France and Germany have in common? These countries most often can’t agree on anything. But they are united in one strange—and ominous—way. They blame the United States for wrecking the global economy. And they think the dollar is the wrecking ball.

One rock-solid, foundational belief underpins almost all economic theory in America: faith in the dollar’s unassailable status as the world’s reserve currency. Foreigners hold so many dollars that they can’t afford to stop buying them, the theory goes. Therefore the dollar’s status as the world’s reserve currency is sound. But the dollar is now coming under a concentrated attack. Are American economists about to get schooled?

Has a dollar-killer been minted?Angela Merkel summed up the dollar-skeptic viewpoint last year. “Excessively cheap money in the U.S. was a driver of today’s crisis,” she told the German parliament. And America’s solution—even more cheap money—was just setting the world up for another crisis, she said. It was just a matter of time.

The irony is that America is completely blind to the catastrophe heading its way. As the economic crisis unfolded at the end of last year, investors made a mad rush out of global stock markets and into other assets. The biggest beneficiary of the panic was the one market large enough and liquid enough to handle the trillions of dollars being moved: the U.S. dollar market. This caused the dollar to surge in value.

--

America’s foreign creditors are again questioning the wisdom of holding so many U.S. dollars. And they’re looking for a way out.


http://www.thetrumpet.com/?q=6347.4807.0.0

Dumping the dollar: Why it's time to diversify

But given the manic ups and downs of the dollar in recent years, it may finally be time to diversify the world's reserves. And that's exactly what some central bankers around the globe are now doing.

This comes as a growing number of economists and policymakers are calling to move away from the greenback as the world's dominant currency. A recent United Nations report says the dollar's movements have been too erratic to hold value and the U.N. urges central banks to replace it with anything but a single currency or even multiple-national currencies.


http://money.cnn.com/2010/07/14/news/economy/dollar_reserves_SDRs.fortune/index.htm

U.N. committee calls for dumping the U.S. dollar

The U.N. Department of Economic and Social Affairs, in a report, called the dollar an unreliable international currency that should be replaced by a more stable system.

"The dollar has proved not to be a stable store of value, which is a requisite for a stable reserve currency," the report said.

Countries with massive dollar reserves have seen their funds undervalued as a result of the dollar's troubles and impacted adversely on their import trade.

--

The United Nations says it supports the initiatives and hopes that finding alternatives to the dollar will help sustain the international trade and financial systems and allow

less-developed countries to participate more fully into the global economy.

Getting "back on track" will require significant reforms in global economic governance and new thinking to put the world on a more sustainable path of development, said the report.


http://www.upi.com/Top_News/Special/2010/07/01/UN-committee-calls-for-dumping-the-US-dollar/UPI-46531277993911/

Will the G20 Dump the U.S. Dollar as the World's Main Reserve Currency?

Jason Simpkins writes: The Group of 20 (G-20) is meeting today (Thursday) and tomorrow (Friday) in Seoul, South Korea, and one of the main topics of discussion will be the role of the U.S. dollar in the post-crisis global economy.

Debate over the dollar's role as the world's main reserve currency rose to a fevered pitch in 2008 when the financial crisis, which began in the United States, first roiled global markets.

Emerging markets – particularly China, which holds some $2 trillion of foreign reserves – bemoaned the dollar's decline as it drained their dollar-denominated assets of value. Food and energy prices have climbed to record highs, as have many foreign currencies, further exacerbating the issue.

The fear among many foreign policymakers is that the United States is intent on further debasing its currency – to the detriment of their neighbors – in an effort to prop up its sagging economy.

Irate over the U.S. Federal Reserve's latest round of quantitative easing, G-20 members have pledged to make the dollar a focal point of discussion at today's summit. Leading the charge has been Brazil, whose finance minister, Guido Mantega, said a basket of currencies that includes the real, yuan, and euro, should replace the dollar as the world's main reserve currency.

"The U.S. economy used to reign absolute, it was the strongest economy in the world and stood out from the others." Mantega said at a press conference in Seoul. "Today that is no longer the case."


http://www.marketoracle.co.uk/Article24202.html

[Xicano]

22. There's your bond market: >>> "Fed buys $900B in bonds to spur growth"

Fed buys $900B in bonds to spur growth

The Federal Reserve on Wednesday made good on its promise to try to spur faster economic growth through a controversial program to purchase about $900 billion in Treasury bonds — nearly half the amount issued to finance this year’s federal deficit.

The program aims to force further reductions in the interest rates on mortgages and other long-term loans that are tied to Treasury bonds, though those already are at record lows, to try to spark a healthier economic expansion and reduce unemployment.

But even before the central bank formally announced that it would print money to buy the federal government’s debt, it already had run into heavy criticism from global investors and conservatives at home for its potential to spark inflation by driving down the value of the dollar — a process that is well under way in global markets.

While putting the strength of the dollar at risk, these critics argue that the bond purchases will do very little to spur business investment or aid a collapsed housing market that seems destined to be weighted down with bad debt problems for years to come.

“This could be wishful thinking,” said Sung Won Sohn, professor at California State University at Channel Islands. While inflation is low and shouldn’t be a problem as long as the economy remains weak, “there is so much liquidity in the economy that additional liquidity may not do much,” he said.


http://www.washingtontimes.com/news/2010/nov/3/fed-buy-600-billion-more-treasury-bonds/

[Xicano]

23. "Worst Time to Buy Bonds in History"

CNBC: >> http://www.youtube.com/watch?v=qdd0ORv0wss

[girl gone mad]

24. The global bond market is wrong..

which is an unremarkable phenomenon by now.

[Xicano]

27. +10 Indeed.

And as much as I hate to say it, unfortunately dmallind's misunderstanding of reality isn't uncommon among most Americans.

[Jmaxfie1]

15. I know at one time they had a big problem with government graft and corruption.

I'm not really all that up to speed on modern Japanese politics, but I know they did have a real problem with corporate welfare and business patronage. The government was using government money to finance building projects that really didn't help their infrastructure but were really just corporate giveaways.

[Hannah Bell]

18. the majority of their debt is to themselves, not from international borrowing.

because the japanese are/were great savers, the govt borrowed their savings at low interest & used it to finance, e.g., stimulus spending after the real estate bubble.

[Jmaxfie1]

19. Economics is not my strongest subject, so maybe someone can help me out with this.

Could we not buy back some of our debt from them giving them money to help them restructure? Or do to our debt are we basically unable to come up with the cash? Like I said, economics, particularly global economics is not my strong point, but I figure there most be some mutually beneficial solution we could work out to help Japan out.

[girl gone mad]

25. We have a sovereign fiat currency.

We can buy back our debt at any time.

[Xicano]

28. Here's the irony.

Yes we can pay them in U.S. Dollars which itself is debt based. In other words we can indeed pay off that credit card bill with.....another credit card. What else is there? Well, like anyone else we can default on our obligations which isn't going to happen, or, we can put up collateral. Don't know what we'd be able to use for that, so, it looks like it'll just be paying off debt with more debt. Isn't outsourcing all of America's manufacturing industry working out great. *sarcasm*

[Jacobin]

26. They had their very own real estate bubble in the 1980s

the banks didn't write down the bad loans. Their central bank has kept interest rates near zero for decades. They've never come out of the slump......kind of like we are doing by pretending our broke banks are solvent