Thursday, February 10, 2011

Every Man, Woman and Child in Japan Owes ¥7.5 Million Yen

That's right you read that headline correctly: Because of Japanese government debt, it is estimated that  every man, woman and child in Japan owes about ¥7.5 million yen. 

That's about $91,000 (USD) at today's rate for every man, woman and child in Japan!!!

I've written extensively on this and this situation cannot continue. I believe that this situation is coming to a head this year as Japan's credit rating cannot stand being cut anymore as it was last month. Cuts in Japan's credit rating cause the interest on borrowing money to go up. Our debt is massive as it is. Compounding it with exponential growth interest will be a disaster. 

Minyanville reports:

Japanese Yen

Although Japan has the third-largest economy, they are swamped with debt. The Japanese government has the highest debt to GDP ratio at 200% of all major industrialized countries. It is estimated that with this amount of debt, every person living in Japan right now owes around 7.5 million yen. Any other country would have defaulted. The main reason why Japan hasn’t yet is the high amount of personal savings rate of its citizens. The Japanese citizens are buying massive amounts of government debt at very low interest rates. 

Despite this, the debt level is worrying. Standard & Poor has said they will slash the country’s credit rating if the debt gets any bigger. If confidence starts to falter, Japan has to pay significantly higher interest rates. At some point, Japan will have to face the threat of a meltdown unless drastic actions are taken.

The US dollar keeps dropping in value, yet the yen seems to hold its own or rise. One of these days, something has got to give. With silver and gold resuming their climbs to new heights, one wonders how soon until the bottom falls out?

This situation is way past desperate.

The Japan Times captures the zeitgeist:

Of course, GDP numbers and league tables are bogus. What really matters is how comfortable people feel, their quality of life, having a job and sufficient income to eat, pay bills and save for a rainy day, being able to confront sickness and old age without being forced into destitution, with a secure political umbrella, and leaders who are respected and not pushed around.
Japanese immediately retort that their lifestyles are the envy of anybody anywhere and their streets the safest in the world, though they hesitate about expressing confidence in their politicians. But the situation is changing rapidly: Japanese are like a frog swimming in a comfortable warm bath unaware that the heat is being turned up.
It is not merely the massive government debts, twice GDP, nor the heavy budget deficit, nor the rapidly aging population — 22 percent already over 65 — which will add cripplingly to government health and welfare bills, but the continuing hollowing out of Japan's industry, the lack of new job opportunities and the failure of political imagination to see a way of breaking the stranglehold of vested interests on economic and social life.
Hard-pressed Prime Minister Naoto Kan has woken up to some of the problems and is trying desperately, waving and perhaps drowning, to signal that it is time to get to grips with the government's massive debts. He has appointed a renowned "fiscal hawk," the curmudgeonly Kaoru Yosano, to be economic and fiscal policy minister tasked with putting Japan's fiscal house in order and raising the 5 percent consumption tax.

I have also written about what a disaster it would be to increase sales tax while the economy is in a slump but, that's what the current government thinks it can do.

They'll be out of power this year and, due to Japanese political turmoil, Japan's credit rating will get cut again. When that happens and interest rates rise, it's anyone's guess what the ramifications will be, but, I'm predicting a serious currency problem for the yen and, in turn, Japan.

This situation cannot continue this way. Things that cannot continue will stop. 

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1 comment:

Guy Jean said...

Forget the Zeitgeist (that's all the JT can report on): give us the benefit of your economic expertise! Tell us what you think "meltdown" might look like.

What if Moody's cuts Japan's credit rating again: will interest rates rise? Will prices go up? Why? What else might happen?

And it's more than 7.5 million because the debt-to-GDP ration is more than 200%, as you pointed out last month.

Personally, I don't hear anyone protesting about the projected rise in consumption tax: everyone seems to have swallowed whole the government's bullshit line: "this will save the country! If we don't, the country will be ruined!!"