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Home Publications Blogs Beat the Press NYT Tells Readers the Cause of Japan's Debt Problems

NYT Tells Readers the Cause of Japan's Debt Problems

Tuesday, 15 January 2013 05:07

Those of you who didn't know the cause of Japan's debt problems, or perhaps that it even had debt problems, will be happy to know that the NYT has the answers for you. In an article on the new prime minister Shinzo Abe's plans for economic stimulus and expansionary monetary policy it told readers:

"At the root of Japan’s debt problems was a similar attempt in the 1990s by Mr. Abe’s Liberal Democratic Party to stimulate economic growth through government spending on extensive public works projects across the country."

That's good to know. Those of us who look at data on Japan's debt might have thought that the main reason for the growth of the debt in Japan was the collapse of the stock and housing bubbles in 1990-1991. The economic downturn and deflation caused by this collapse had already raised the debt to GDP ratio by 10 percentage points by 1993 (@$1.6 trillion in the United States), a point at which deficits were still minimal.

We also might not have known that Japan has debt problems. The interest burden of its debt is now roughly 1.0 percent of GDP, lower than the interest burden in United States at any point in the post-World War II era and less than one-third of the peak burden hit in the early 90s. The interest rate on 10-year Japanese government bonds has been hovering near 1.0 percent. This isn't the sort of interest rate that is ordinarily associated with a debt problem.

That's why readers are thankful for the information the NYT gave us in this article. If they had just relied on the data, they wouldn't know these things about Japan's economic situation.

Comments (4)Add Comment
written by Chris Engel, January 15, 2013 5:07
It's criminal what the press has been getting away with on the Japanese debt position.

If everyone understood what was going on in Japan their whole worldview of national debt and deficits and government spending would be turned upside down.

That's why it's in the interests of NYTimes to push lies like public works programs and deficit spending leading to the current debt/gdp levels. Anyone remotely involved in finance knows what happened to the Nikkei and their housing market and how INADEQUATE stimulus and response to that crisis is what has led to their protracted deflationary hell.

The irony is that Japan had their own sort of tea party nuts who were insisting that overheating the economy would bring ruin to Japan, when the whole time there wasn't any real signs of inflation or overheating going on at all.

So the Republicans can be essentially viewed as the Pro-Austerity, Pro-Japanese-Deflation-Stagnation party at this point, since they're refusing to step up to the plate to risk overheating in the name of at least giving a full recovery a chance.
written by JDM, January 15, 2013 5:15
Among the things I wouldn't know if not for news media like the NYT:

1. the real true source of Japan's problems
2. how great the Estonian economy is
3. The USA is in a similar position to that of Greece

The one thing the NYT does teach me that I do know for sure is true is why so many of my acquaintances -- which includes some regular folk, some very smart folks, and even a certified financial planner -- are very confused about virtually every aspect of the world economy.
Real Reason for Japanese Deflation
written by kaj, January 15, 2013 10:32
The meeting in the U.S. of Finance Ministers of major developed economies in the 1980s during the Reagan Administration --the Plaza Accord-- in which the Japanese and the Europeans were forced by the U.S. to revalue their currencies upwards was the principal cause of the Japanese Deflation. Because of that "concord," the Japanese currency went through the roof and is now worth less than a quarter of what it was in the 1970s. This forced the Japanese to off-shore their production, in the process laying off a big chunk of their work-force and allowing in massive imports which at much lower prices because of the strength of the currency have led to the continuing "deflation."

This is also the reason why Chancellor Merkel does not want Germany to leave the Euro Union and expose German industry to a very expensive currency; the same logic is what terrifies the Chinese government.

When the value of the Yen jumped, so did the relative purchasing power of the Japanese households and institutions leading to speculative investments in the housing market.
written by watermelonpunch, January 16, 2013 1:41
That's downright bad.

And more reason nobody should ridicule people who just don't have a clue. Who's giving them any accurate comprehensive information? NO ONE.

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.