Tuesday, August 24, 2010

Debt! Who is Better Off? Japan or USA?

By Mike in Tokyo Rogers


When it comes to public debt and the coming economic turmoil, who is better off Japan, or the USA?


I received a letter from a friend who asked me this question. It read;


Just a quick question. When it comes to debt, I wonder which is really worse off. I read somewhere that Japan's debt basically comes from the Japanese public, where as the US debt is from various countries. Therefore, when analyzed who is worse off?  (Sic)


My answer: Thanks for the question. But, please do not get the debt issue confused. Japan's debt is not "from" the Japanese public. Nor is USA debt "from" various countries. The debt is Japanese or USA government created. The governments created this debt through public spending on projects, war and social welfare with money they do not have. 


Remember that the government does not have any money.  The government can only take money from business and the public by borrowing it or taxing the people (they can also print and debase the currency which is a backdoor tax on the public)... Later, someone has to pay back this debt.. In the case of Japan, the public bought the debt as investments... In the case of the USA, foreign governments have bought the debt as investments...


Regardless of the confusion as to who created this debt, I understand the basic question and think it is a great one.  Instead of me just making my remarks I decided to ask someone who I definitely look up to for advice when it comes to this kind of subject and that is my friend, Mike "Mish" Shedlock. Mish Shedlock runs one of the most-read economic blogs in the world and is a registered investment advisor representative for SitkaPacific Capital Management.


I slightly rewrote the question to Mike:


When it comes to debt, I wonder which is really worse off; the USA or Japan? Japan's debt is basically held by the Japanese public, where as the US debt is owned by China, Japan, Saudi Arabia, etc... (various countries).  Therefore, when analyzed, who are worse off? The average Japanese or the average American? 


Mike's answer: 


Japan is worse off - Their problem hits first (Japan already has debt at 190% of GDP - USA debt 87.6% as of May 15, 2010). Also Japan is much worse off because of demographics – a much older population... Timing is the key! The USA actually has some time to do something (even if we know they won’t) 

Me: To sum up; the USA is better off than Japan, for now, because Japan's debt percentage to GDP NOW is larger and because the percentage of the Japanese population that is no longer in the workforce is larger.  

Another person wrote and asked me "What should we do?" Now, that's a great question too! (realize that most people still, to this day, are not thinking about one or two years into the future when this entire situation is really going to start hitting home).

I answered:  

So, what do I recommend? Get out of debt, live within your means... Fight anyway that you can government spending and increased taxation. Get the government warfare and welfare state off our backs. Allow the free market to shake out the sick parts of our economy...

Own gold and silver and oil. Try to become self-employed or to start your own business for tax purposes.



If you want good advice on this subject... I suggest reading Mish Shedlock everyday! http://globaleconomicanalysis.blogspot.com/

Keywords: Mish, public debt, USA,

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