Japan's national debt

While everyone is concerened about Europe's national debt, shouldn't we also be concerned about Japan's national debt which is nearly 200% of GDP. Japan being either the biggest or 2nd biggest trading Australian trading partner. I'm not too concerened about Japan defaulting on the debt (it would be bad if they did but it's unlikely that they will for now) but rather concerned that Japan will need to slow down it economy by reducing government expenditure and increasing taxes to pay down the debt.

If Japan goes into another deep recession and China slows down, could this be the end of the Australian miracle. We have nearly had 20 years of solid economic growth. No wonder that house prices keep increasing. Some people think that Australian property will not crash as we are different. True if the Australian economy doesn't go into a deep recession, then there won't be a crash, however if we do then watch out.

While I think it's possible that Australia could have a deep recession, I think that we will continue to dodge the recession bullets, assuming China keeps it's huge demand for our raw materials.
 
it's not just hedged on China. It's a blend of a number of factors.

We export more than just fancy dirt - in fact, fancy dirt only makes up a quarter of our exports.

IF China slowed, WA and QLD would be hit first.

 
national debt (government debt) doesn't tell the full story.

You need to look at net debt, which accounts for domestic and foreign
reserves, and is around 105%.

Then you need to look at what currency foreign debt component is held in....which is mainly local currency....meaning they won't owe more to foreigners if the yen weakens. Their national debt is primarily held by Japanese citizens.

It is the world's largest creditor nation and has a current account surplus (positive cash flow with the rest of the world). Obviously the positive cash flow and high savings put them into a stronger position than Australia and the USA.

Finally, they are a low tax economy, so have a lot of room to raise taxes to pay down govt debt.

Most economists don't see Japan representing as big a risk as Europe, UK, US, or Australia/NZ, for another decade.

The largest risk is still debt default and contagion in Europe. There is a serious risk that could freeze global credit flows. Spanish banks are growingly unable to roll debt, and may need to be bailed by their govt.
 
Hi, thanks for the perspective, WW. I was always puzzled whenever someone talks about Japanese debt.

In early 90s, a list appeared in Time magazine. I had to talk to my students about world economics and I distinctly remember the top creditor & debtor nations.

China was not in the news then. Japan, Switzerland, West Germany, either Korea or Taiwan and Singapore were in the top 10 creditor nations.

The biggest in terms of absolute external debt was USSR followed by the USA.

Something like that.

We didn't see that Argentina was going to the dogs.

It's 20 years now & they survived, albeit not very well.

I'll take an active interest in all these matters but I won't live my life thinking that the world will collapse because so many nations owe so much or that we're going to run out of petroleum. We spent many hours in Form 6 debating the exact same issue & I won't embarrass anyone by saying how long ago that was!

KY
 
Hi Kym... IMHO, the national accounts of nations and global capital dependencies are definitely worth understanding these days.

Preserving your capital's value has never been as reliant on it. 95% of journalists and politicians don't understand this stuff well, and I don't think the central banks, the IMF, or the World Bank can be relied on to present clearly the risks in a timely manner.

Ergo, any effort trying to understand it better is not wasted.
 
it's not just hedged on China. It's a blend of a number of factors.

We export more than just fancy dirt - in fact, fancy dirt only makes up a quarter of our exports.

IF China slowed, WA and QLD would be hit first.



I'm really interested in this stuff BC. Where'd that pie chart come from though? I seem to get some different figures to that. I believe fancy dirt does make up most of our exports, but I'd like to debate it.

From this,....

http://www.economywatch.com/world_economy/australia/export-import.html

I'd think the rural exports are a bit low, but the minerals and fuels are way too low. Coal exports on it's own is double the entire rural exports, at $54 billion.

http://www.australiancoal.com.au/the-australian-coal-industry_coal-exports.aspx

Iron ore is way bigger than rural too.

And we might export services, but if we import more services than we export, is it really an export?
Exports of services : A$53,298 million
Imports of services: A$56,880 million
Services trade deficit:A$ 3,582 million


That pie chart is wrong I reckon. I think it might be a decade out of date. It's pre the commodity boom at a guess.


See ya's.
 
The countries in danger are not those with large debts but those with large surplus. Germany and Japan may have lent the UK and US lots of dollars but there is no way they can force repayment (if everything turns apocalyptic).

Remember that for every debt borrowed, someone has lent that money in the first place. Global surplus - global debt must equal zero. The party exposed to all the downside is really the creditor.
 
but if countries have allowed borrowed funds to be on-borrowed at a higher rate - ala the Euro Bailout - then where does that leave everything?
 
The countries in danger are not those with large debts but those with large surplus. Germany and Japan may have lent the UK and US lots of dollars but there is no way they can force repayment (if everything turns apocalyptic).

Remember that for every debt borrowed, someone has lent that money in the first place. Global surplus - global debt must equal zero. The party exposed to all the downside is really the creditor.

yes, but usually when you lend money you get something to guarantee the debt. You might end up with Germany and japan to own US homes and business as result of default. So, they'll get something in their hands. You already get this scenario in Australia where company like RIO are much more owned by foreigners then Australians
 
Japanese have massive savings to ride through anything because they're on like 0 growth anyway and the economy has stagnated. There's nowhere to reinvest any cash earned and most banks/corproates are quite cashed up, so is the populace. The government is pretty debt-ridden but that's because they're maintaining a certain level of activity that's probably disproportionate to future growth.
 
There's nowhere to reinvest any cash earned and most banks/corproates are quite cashed up, so is the populace.
,

all is relative, I don't think banks in Japan are cashed up, they have been struggling for the last 20 years, their problem is that assets on japanese banks books are losing value, so where are they going to find money to pay interest to japanese banks account? if they increase lending while assets value is indeclining they just increase leverage.
Population has been saving but assets prices 20 years ago went to madness levels and despite the savings population is far from paying off debt.
People in Japan hold lots of assets out of the country (net foreign liabilities surplus), so when there is any trouble in world economy money tend to go back to the owner and Japanese Yen rise as a conseqence
 
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