Japan Debt Now 237% of GDP!!!

It has come without much fanfare. In fact, it wasn't even headline news that I saw. Bloomberg now reports that Japan's debt to GDP has hit 237%. Well, they didn't really "announce" it... It was hidden in another article...

No money? No problem, just borrow more!

From an article about the US debt entitled "G-20 Tells U.S. to Avoid Fiscal Cliff as Focus Widens" buried deep-down in the 19th paragraph, it says:

Japan, which has a debt of 237 percent of GDP, is also facing fresh budgetary challenges. Its Ministry of Finance is warning that a refusal by lawmakers to authorize 38.3 trillion yen ($476 billion) in borrowing risks leaving the government unable to hold debt auctions as planned.

Incredible! The Ministry of Finance wants to fix our debt problems by taking on more debt. Well, why not? Look how well it has worked these last 20 + some years!

What is really amazing is, though, it was just last May 22, 2012, to be exact (less than six months ago) that Bloomberg announced that Japan's debt had hit 220% of GDP. From "Japan Must Raise Taxes as Debt to Top 220% of GDP, OECD Says"

Gross public debt will be 223 percent of GDP next year, up from the projected 214 percent in 2012, “pushing Japan’s public finances further into uncharted territory,” the Paris-based OECD said in a report released today.

Only 223%? We wish. 

Folks going from 220% in May 2012 to 237% in November 2012 is almost a 9% increase in six months! At that rate it is equal to 18% a year. 

Those increases are worse than the rates you get when you take loans from yakuza loan sharks.

Doomed?

Everyone knows how "Exponential Growth" works, right? 

Exponential growth says that whenever growth is at a constant percentage, to see how long it will take for any number to double itself is just to take that constant percentage and divide it into 70.

At 18% growth, Japan's debt will double in 3.8 years. That means that Japan, continuing at this rate, will have a debt to income ratio of 474% by about summer of 2016... By 2020, Japan's debt will be 948% of GDP.

This isn't a guess, folks. This is simple math. 

Better get your financial house in order. This cannot go on like this.

Watch this and imagine that this is our debt....

More on Japan's Debt Bomb

In a follow up to my last post, about Japan's debt and S&P cutting Japan's credit rating, my good friend Ira Hata, sent this to me:

Here are comments on the Euro, Yen and potential bullish consequences for the US equity markets for the first half of 2011.
  

While there is serious resistance near 138 & then 140 – 142, the Euro according to the chart below could be ready for more upside in 2011 which should be supportive to US stock market 1st half 2011

As things now stand a rising WLI, growing M2 money supply growth rate, QE2 in full force, and fiscal spending from past packages kicking in, all suggest staying with the trend and buying any market dips. To be a bear right here you would have to be fighting both the Fed and Uncle Sam (fiscal and monetary stimulus) and completely ignoring the message of the markets  … the bull case for the next few months could strengthen even further with another development, subsiding of the euro debt crisis

Thus, if this exchange rate breaks out the bears will have to take a back seat, AGAIN!

What’s changed in Europe?

In reality, there are still clear sovereign debt issues to worry about in Europe, however, a global coalition is moving to support European debt that is lifting their credit markets. Things first began to turn when China and Japan decided to step in the ring and buy European debt, but momentum is building as other Asian countries are looking to do the same. This mutually beneficial decision helps Asian markets particularly by cheapening their currencies and bidding up the Euro to help their export-driven economies.

Euro could stay strong and or Yen could weaken… 

From Bloomberg:

Japan's Credit Rating Cut to AA- by S&P on Debt Load

The yen and bond futures fell on concern the downgrade will push up the cost of borrowing for Japan, where public debt is about twice the size of gross domestic product. Vice Finance Minister Fumihiko Igarashi this week said the government must fix its finances to avoid a debt crisis that could trigger a “global depression.”  …  economist at BNP Paribas in Tokyo. “Once bond yields spike and the fire is lit, the amount needed to finance Japan’s borrowing needs is going to jump and it’s going to be too late.” …  Japan joins developed economies including Portugal and Spainin being downgraded.    Debt to GDP: Japan’s burden exceeds 200 percent … (estimated that China’s ratio of debt to GDP would be 20 percent in 2010)
AA-  is the third-highest grade

Some people have asked why this is so important now as Japan has been getting away with kicking the can down the road for the last twenty year. For a very interesting explanation on that, watch the video below. This video was created originally to promote AGW, but It explains the concept of exponential growth in a very simple and easy to understand way. If you can understand this concept - and the Rule of 70 - then you will understand why Japan's credit rating getting worse and a few points increase in borrowing is a very big deal for Japan.

Thanks to Mish Shedlock for the video