Whilst simultaneously having a rapidly declining birth rate, and relatively low levels of immigration, to maintain a homogeneous society, without imploding in on itself?
In: Economics
The lenders really only care that you keep making payments. As long as that happens they are pretty happy to not raise a stink and let the money flow. This is why (usually) national debt is a non-issue.
Now Japan is a unique situation because a large part of this problem is artificial. Specifically the low rate of immigration. As for why? They are a podium contender in the racism Olympics.
States aren’t at all like private households. They more or less are in direct control of the productivity of the whole economy. It’s almost infeasible that a state loses its entire financial fluidity.
Also for bigger institutions it’s actually productive to have a high debt ratio, as it increases your overall productivity potential. This is known as the leverage effect and is practiced widely by businesses.
National debt is bought by the countries pension plan and other hedge funds at very low interest rates. So it is very serviceable. Also, the yen is losing value. So they can just buy USD, and it will appreciate in value relative to the yen keeping ahead of debt accumulation.
AFAIK Japan isn’t actually economically sustaining itself and it has a lot to do with their energy sector. They’re entirely dependent on foreign economies in their energy sector.
That aside, I just had a similar convo on this with my friend, and the user u/bohba13 nails it. It’s about the profitability value that Japan has to the lenders and credit system. Japan has enough of an export economy that they have enough collateral and income to be able to make their payments so they’ll keep getting benefits in the area of their debt. Sort of like the same thing with the US.
Why is the US getting extensions and additional credit? Because they have enough of an income from their exports that even though they’ll never be able to address the debt, they’re guaranteed to generate a profit to their lenders.
Businesses and nations do not run like a household. A certain amount of debt is actually good and preferred to using their own money. There are a lot of numbers games associated with it. Actually rich people also do something similar with their estates. When people talk about how the rich can’t actually use their wealth because it’s tied up in stocks and they’ll tank the stocks if they sell. .. well that’s really not true. What happens is they take out big loans with nice terms using their wealth as collateral and then just make minimum monthly payments on it. Eventually those payments become meaningless as inflation eats away at it and they make more and more money off of their investments. Kind of like your mortgage.
It’s a great question with a really simple answer. They can’t run out of money. Furthermore, they control the interest rate, which they can, and do, often have sitting at about 0%.
It goes a lot deeper as well, the debt itself is basically just printed Yen in savings form, and not “debt” like a credit card. But we’ll put that aside. Their government with their central bank fully controls how much money they print by way of spending new money into the economy, and the interest rate on their bonds.
Now, separately from their money is their real economy, aka how much they produce. Their aging population with a low birthrate may outpace acquiring the new tech to make the fewer and increasingly burdened remaining young workers too slow to stop economic shrinkage. We have yet to see if that spirals into collapse or if it just readjusts downward. But it won’t be because of their public debt.
And that same risk is showing up worldwide regardless of debt.
Now for countries whose debt is in other countries’ currencies, yeah if their economy starts shrinking and they can’t make payments, they will have both problems like you imagine from your question.
They owe the debt to themselves. Paying it back goes right back into the economy, just like the United States’ debt. The debt drama people are just using this for politics or ratings. It’s not great to have debt, but it’s nowhere near the drama articles make it out to be. Kinda like borrowing from your 401k.
It is imploding on itself, that’s why they have to spend so much money they aren’t making. It’s just imploding slowly. As to why it’s happening so slow, governments have almost complete control over their own economies, and there are a lot of bandaid solutions they can implement to fend the implosion off just a little longer. A government can sustain a debt spiral for a long time if they don’t push it too fast and trigger hyper-inflation or a run on the banks. Eventually it will all fall apart, but eventually can be a long time.
As others have noted, when you are a country that can print money, it’s impossible for you to run out of (your) money.
The only thing a country needs to worry about is debts denominated in other currencies. Japan is riding a lot of goodwill dating back to the 1980s when they convinced the world (and especially Americans) that they were super at business. So, so far, foreign investors continue to trust them to pay back loans.
So if you can print money to pay yen debts, and successfully get loans to cover other debts, you’re solid. Japan also has some very specialized manufacturing that they can pretty much charge what they want for, which helps with foreign currency.
Any other country, without the particular situation Japan has, would not be in a good place right now.
The important thing to take away from this is that macroeconomics is astrology for fancy people.
In addition to everybody’s excellent answers, keep in mind that GDP is an annual number, and debt is not. When I first bought my house, I had a debt to income ratio of 207%. But my payments on the mortgage (excluding insurance and taxes) were only 10.8% of my income, and my net worth was positive, so despite being hundreds of thousands of dollars in debt, I had more than enough assets to cover the debt.
Debt is a balance sheet consideration, income is a cash flow consideration, and while comparing across those two things can be useful it has to be done in the context of their differences.
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