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Japan is drowning in debt. It is also one of the U.S.'s biggest creditors. Can this last?
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TOKYO — It’s hardly news that the U.S. government is breaking new records for deficit spending. According to official projections, by the end of fiscal 2010, the government will accrue nearly $3 trillion in new debt, bringing the outstanding federal tab to $14.4 trillion.
That will put the public debt-to-GDP ration at nearly 100 percent — meaning that for every dollar the U.S. economy produces, the government will owe a dollar. This has triggered a heated debate — catalyzed by Beijing, which holds the largest foreign chunk of U.S. debt — about whether the burden hasn’t become overwhelming.
But if you really want overwhelming, take a look at Japan.
According to the OECD, last year Japan overtook Lebanon in debt, leaving only Zimbabwe with a worse public debt-to-GDP ratio. By 2010, the figure is predicted to reach 197 percent of GDP, or about $8.5 trillion. Within 10 years, it’s expected to hit 300 percent.
Paying back government bonds this year will cost Tokyo over 20 trillion yen ($200 billion), or nearly a quarter of the regular national budget. That would leave a gaping hole in spending plans, if it weren’t for the fact that the government will issue more than double that amount in new bonds.
That raises the question, how much red ink is too much? As America frets about the sustainability of its own debt, what can be learned from Japan, where the figure is already twice as bad? And how has Japan gotten away with borrowing so much?
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