Japan National Debt At 204 Percent of GDP

Any discussion of national debt in the United States requires a bit of perspective. Those arguing that it is not a big deal often point to Japan as an example. Are they wrong?

Japan is a unique country. It is geographically and culturally isolated. It also has a huge financial conundrum going on. The country carries a national debt load that is simply staggering. The latest estimates put it at 204 percent of the gross domestic product. Anything over 90 percent is generally considered a disaster waiting to happen, so how does Japan keep moving forward without the Yen collapsing?

The answer involves a unique twist. The debt of Japan is only nominally owned by foreigners. The vast majority of it is instead owned by the actual citizens of the country, people who are willing to sit on the bonds and not worry fluctuating daily returns. Although the debt is exceedingly high, it is controlled by this factor.

The national debt in the United States is another matter. Roughly 40 percent is owned by foreign interests. In truth, this is an underestimate as the debt is also considered to be owned by social security and other government programs that have had their surpluses swiped to pay for the whims of politicians. Regardless, this puts the treasury notes in play much more than with Japan, and allows the debt to be attacked by bond holders should they so desire to.

All is not well with Japan though. While they have a unique situation that allows them to skirt the traditional debt rules, they are a dying country –literally. The population has aged significantly and there are far more people dying than being born. There are many reasons for this, but the biggest is most youth can’t see how they will pay for having children in such an expensive world. Long term, that will lead to major problems in the country of the Rising Sun, much bigger problems than just a rising debt level.

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