Sunday, March 13, 2011

Japan Debt

I can hear the noise machine wheels begin to turn already as they gear up to din it into us how the Japanese calamity is just one more reason why we have to cut Headstart/NPR etc. Japan's debt is already the highest of any country but Zimbabwe (they will remind us) and now they will have to rebuild and oh dear we don't want to go there.

Narrowly speaking, they are right. At twice GDP, Japan's debt is way too high and no we don't want to go there  (we're still under one times GDP, but  climbing). But there is one central fact about Japanese debt that doesn't (I think) get sufficient attention. That is: 95 percent of Japanese debt is owed to other Japanese. For the US, the figure is more like 75 percent--much lower, if you recognize that a goodly chunk of that debt is money the US government owes to itself.

That extraordinary high level of domestic debt--coupled with a correspondingly gasp-inducing level of private savings--is Japan's blessing and its curse.  It is partly tied up with the way Japan has been so adept at pushing its fiscal problems under the table (so as to "save face"(!)).  But it is also part and parcel of the Japanese sense of "we're all in this together," together with an extraordinary impulse to make things work.

I don't mean to glamorize here.  Japan certainly is (not to put too fine a point on it) rich in contradictions--the nastiest of conquerors, isolationist and xenophobic, second to none in violent porn.    But even before this week, the Japanese had already suffered the worst nuclear calamity in human history.  And recovered with an energy and resiliency that put all the rest of us to shame.

Fun fact: principal foreign holders of US public debt: the Japanese.

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