National Debt of Japan

Debt is not just a problem for the United States. The Japan debt level is even scary. In fact, Japanese debt levels are so high that they break all modern economic rules. 

Big Japan Debt Load

The Japanese break all the rules when it comes to national debt. The magic number most economists are worried about is 100 percent. When your debt load reaches 100 percent of your GDP, you are in serious trouble and history shows time and again that your economy will collapse. In short, game over and people needing wheel barrows to buy anything with your currency.

Japan’s current debt percentage is 203 percent of GDP as I write this. Yes, more than double the supposed threshold when things hit the proverbial fan. As you’ve probably noticed, the Japanese economy hasn’t crashed. The Yen is still a viable currency. There aren’t Japanese out in the streets rioting like you see in Greece. So, what is up?

A Different Type of Debt

Japan carries a huge debt load, but it is different than what other countries carry. The key issue is not the debt itself, but who owns it. In this case, the Japanese debt is owned almost entirely by the citizens and companies of the country. It is somewhat of a cultural phenomena in that many consider it a duty to buy it.

This concept has precedent. During World War II, for instance, Americans were encouraged to buy “war bonds” in the United States to support the war effort and they did in droves. The same basic idea is being used in Japan. In fact, it is about to accelerate as the country tries to come up with the money needed to deal with the recovery from the catastrophic earthquake and tsunami in 2011.

Not A Free Ride

This ownership situation makes the Japanese debt problem a bit different than most countries. That being said, the government still has a major problem. It is currently paying out fully 60 percent of its tax revenues in the form of interest on all this debt. How then does it find money to keep the government running? It borrows more. It is a downward spiral that can only end in one way – default. When that will occur is hard to know, but the economy has been hurt for well over a decade. In fact, it is referred to as the “Lost Decade” by economist because growth was so poor.

The Japan debt level is massive. The unique ownership situation allows it to survive, but it is only a matter of time before the façade falls and the country must deal with the situation.

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