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
Also , those who have the money to lend to governments are looking for somewhere to put their money. If the alternatives are keeping it under a metaphorical mattress (means losing value due to inflation) or lending it to some other government, then lending to a stable, albeit slowly declining Japan for a low rate of interest can be a good or at least less bad option.
Simple answer. They are not.
Gdp per capita 1995 = 39k usd, 2012 = 49k usd and 33k in 2022.
The US in the same years was 28k, 52k and 76k.
The Japanese economy is fueled by a cycle. The citizens lend money to the state, and the state pays interest back to the citizens. This is how the aging population is able to maintain their wealth. It is basically a cleptocracy for the elderly, against the working youth. Your prosperity in Japan is based off of how much wealth you have, and not how much wealth you are able to generate.
Many people assume that catastrophe hits when the government is no longer able to service its debt. But fail to realize that the existence of the debt, and the servicing of it can be equally catastrophic, if not more so.
How is Japan able to economically sustain itself with a debt to GDP ratio of over 250%? [That’s the neat thing, they can’t!](https://youtu.be/se17_0zbZds?si=Enz8g56YsnFtj9C7).
Nations are the _definition_ of “too big to fail”. Hell, the US’s national debt is sitting at around 30% of _all money in the entire world_. (US debt: ~30 trillion, World GDP (2022): ~101 trillion)
Those bonds are largely owned by people in Japan. So payments from the gov go to people in Japan. On net there’s no money lost to Japan’s economy as a whole.
The Japanese government has a *net* debt to gdp ratio of about 114%.
https://www.stlouisfed.org/on-the-economy/2023/nov/what-lessons-drawn-japans-high-debt-gdp-ratio
A huge fraction of the debt the Japanese government has basically is purchased assets, both foreign and domestic. Those assets have returns.
Their net debt position is probably better than that of the United States, or at least within the margin of error on these estimates given that we tend to look at data that is a few months to a couple of years old.
This isn’t necessarily a good strategy, but image you went and borrowed a million dollars. You then took that million dollars and bought a bunch of investments like stocks and US government bonds. You then use the returns on the assets to pay the interest on the debt.
Japan has a shrinking workforce, and population. In that situation you would expect them to have a debt to gdp problem that is only going to get worse, and it might. But they have more than 2 trillion dollars in foreign investments. If those pay returns faster than gdp shrinks (because other countries grow and produce returns) they might be ok.
If the government of Japan goes into too much debt, the government won’t be able to function and a new government will replace it.
Latest Answers