Eli5: How can some country have trillions of dollar in debt like Japan but still functional without any consequences?

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Eli5: How can some country have trillions of dollar in debt like Japan but still functional without any consequences?

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Anonymous 0 Comments

Imagine all the money issued by the country on a number line. The country’s debt is a certain portion of the number line. Imagine that there were 5 yen in the economy and Japan’s debt was equal 2 yen, so
Japanese debt is 40% of the economy. The imagine it issues 5 more yen so now that 2 yen of debt is only 20% of the economy.

When you control the number line, you have a lot of influence over what proportion of the number line is your debt. Thus the size of the debt doesn’t really matter when you control the currency. However you have to be careful that you still maintain control over the currency and that people continue to use your currency.

Anonymous 0 Comments

They just pay about half their taxes straight to the bank which loaned the money. That’s paying off interest. They COULD have twice the… services, welfare, or giant robots. Instead they have debt.

In short: Japan doesn’t piss away as much of their money on the military. They spend about 1% of their GDP on the military while the USA is spending 3.8%. But of course the USA spends a ridiculous amount on the military. This is what we have instead of healthcare.

Anonymous 0 Comments

Japan has an extremely high rate of domestic savings, which balances out the large amount of debt.

Anonymous 0 Comments

They’re starting to feel the consequences now, ultimately it’s unsustainable. Why they survived for so long is because their citizens are financially prudent and lent their money to their own government. The citizens themselves have big savings and little debt.

Anonymous 0 Comments

well most of the debt is actually owed to the citizens. Think of all the retirement accounts that are partially vested into government bonds. The accounts are sitting on those for 20, 50, etc. years. So its not like someone is banging on the governments door asking for the money right this second. Its owed at some point in the future and the countries are generally good for it in the long run.

Anonymous 0 Comments

Modern Monetary Theory (MMT, aka the model that countries usually use and say they don’t) says you have 2 buckets:

[Government Money] and [Private Money]

The way the private economy gets along depends on having enough money in circulation to satisfy demand without overrunning demand. We never want too much money chasing too few goods.

[Private Money] is added to by Government Spending, subtracted from by taxes.

[Government Money] is added to by taxes and, subtracted by debts and Government Spending.

Did you catch that? Where do debts go? That’s right, into the [Private Money] bucket.

Government debt is economic stimulus. A Government bond is basically the same as a piece of currency, except it provides interest.

So, debt is normal, it means the government is doing things to keep the economy running.

Now, if your government also *issues currency*, like Japan does, then ultimately, the money in its bucket doesn’t really matter. It can increase or decrease spending, and debts, raise and lower taxes, and there’s no balance sheet that has to be maintained on the [Government Money] bucket.

The government does have to ask the private economy to do things that it *actually is capable of doing*, though, otherwise, you get too much money chasing too few products. Again, that’s bad.

Anonymous 0 Comments

Nation debt is a good thing because it fowards investing into your country.

Money is fake and we just circulate all these imaginary numbers for power and equality.(doesnt work well.)

Anonymous 0 Comments

The only real problem with debt occurs when someone calls in their loan immediately or you lose the ability to pay or promise payment. So long as you can continue to make the required payments (or convince the lender that you are good for it) you can continue to function.

The same is true of global debt. So long as a country keeps its foreign and domestic lenders and citizens (these may and often do overlap) happy through the flow of money/services etc. the country continues to function.

When it cannot, then it ceases to be able to provide for its citizens (either almost immediately or over a short period of time) and the country falls into corruption/war/civil war etc.

Anonymous 0 Comments

Debt for countries doesn’t quite work like debt for people.

Debt in a country is represented in their own currency. Having high amounts of debt equates to people trusting not only their currency, but their financial system in general meaning a lot of people will continue to use that system which is what gives any currency power.

Anyone saying the US debt ballooning is a problem is making a bad faith argument by equating debt from a country the same as a person having debt.

However the country can always print more money and so the only time it can default is politically, or if the debt shifts to another currency. (Which happens in poorer countries where their financial systems aren’t as trusted).

Debt is good though because of inflationary currency and usually the country interest rates aren’t as high as commercial debt because of the surety of the debt to be repaid. Therefore it’s actually beneficial to have debt.

Anonymous 0 Comments

People trust Japan to make their credit card payments.

Think about it from the lender’s point of view: would they rather you max out your cards and pay them interest every month, or give them enough money to pay off the debt? They *want* you to owe them a lot of money. Collecting interest on money you owe them is where they make their profit!

So long as Japan has a good credit rating, able to make all their payments and serious about making sure interest payments are a top priority, people will happily lend to them. That’s what investors are looking for, after all; places to put their money where they can get a return.