Is Japan’s Economy a Precedent for the Dangers Facing America?
I am far from being a student of economics. But on my birthday 3/13, the Economist magazine outlined Japan’s economic plight without ever suggesting that other countries may follow it into the ditch. Japan has by now experienced fiscal deficits and debt downgrades for a long while. Its stock market is about 75% below its peak in 1989! A strategist at Société Generale feels that the moment of reckoning may not be far away.
More citizens are reaching retirement age and obtaining government handouts, and the Japanese are not saving as they used to. Others argue that statistics produced by the government are an allusion, for several reasons including evaluations of government assets.
In this particular case, the Economist is willing to project that at some point the worst fears of the bears will come to pass. Debt servicing in Japan at 35% of government revenues is much higher than the increasing numbers which we are experiencing in the U.S., and if yields go up from their rock bottom levels (e.g. 1-2% for bonds) this debt/revenue ratio will balloon further. The amount of Japanese debt which is owned by government agencies is considered by many a financing pyramid which will likely collapse. And history shows that such situations lead to default and/or inflation.
As in the U.S., some Japanese are hopeful. Yes, 2010 seems safe for a variety of reasons, but those reasons are considered temporary. If you wish to read more about why Japan’s current measures “just postpone the evil day”, go online and look up the Economist 3/13/10 article called “Apocalypse, Not Now…The Alarming Future For Japan’s Finances”. I rarely see this publication being this definitive.
I’m a democrat, but in a general sense I feel quite uneasy about our growing deficits and economic future, and somewhat exacerbated by the Japan story.
39 Comments