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The Problem of Japan's Declining Population

Sunday, 20 March 2011 08:27

The Post had yet another piece warning of the horrors of Japan's declining population. Of course Japan is a densely populated country with very high priced land. However, it is possible that if its population declines too much that they will no longer be able to find workers to push people into over-crowded Tokyo subway cars. 

The piece also confuses the importance of foreign holdings of public debt and foreign indebtedness. It argues that Japan need not fear a run on its public debt because the vast majority of the debt is held domestically. The more important issue is that Japan is a huge net creditor country as a result of running large trade surpluses for decades.

Its net indebtedness position is the key factor in this story. If it had a large foreign debt it would have to fear a flight from the yen even if none of its public debt was held by foreigners. Such a run would send the yen plummeting and cause import prices to soar. This is exactly the same risk it would face if foreigners owned its public debt, since the central bank would always have the option to buy the debt sold by foreign investors.

This point is important because many deficit hawks make  the same sort of misleading comment about U.S. debt. Insofar as there is a problem of foreigners holding U.S. debt it is due to the trade deficit the country is running. This gives foreigners the dollars they need to buy U.S. assets of any sort, including the stocks and bonds of private companies, as well as U.S. government debt.

The trade deficit in turn is the result of an over-valued dollar, not the budget deficit. Therefore, if these deficit hawks were really concerned about foreign holdings of U.S. assets then they would be focusing their efforts on getting the value of the dollar down, not reducing the budget deficit.

Comments (4)Add Comment
written by izzatzo, March 20, 2011 10:05
Dear Dean,

Thanks for explaining these complex economic relationships so clearly. I never realized the link between cram-down losses and the cram-in density of the overpopulated into fast subway cars financed by trade surpluses. Now I know both are caused by a domestic flight from overvalued foreign fake fiat currency that causes wealth erosion of the buying country compared to the selling country.

I will report these findings back to my economics reading club, Big Commie Deficit Lies, so we can continue to make further reporting recommendations to WaPo.


Alfred K. Segrienfeld III, Esquire Debutante
Aristocracy and Oligarchy, Inc
Foreclosure, Division of Bubble Assets
International Brotherhood of People Pushers
written by Union Member, March 20, 2011 9:10
The people hired to push people into Subway Cars have the right to Collective Bargaining.
written by A Sinclair, March 21, 2011 9:11
The problem is the bonds are held in Japan and the largest holders of the bonds are turning to net sellers. The projected deficit is $538 billion which is more than government revenues and possibly another $150 billion for the earthquake. The savings rate has dropped to zero and the low interest rates are forcing retirees to liquidate bonds to live. For the Japanese to sell bonds internationally, they would have to more than double the interest. Interest already absorbs 22.4% of revenue in the new budget at the low rates. The Japanese government has wasted much of the money. 53% of spending is Social Security. Fewer workers and more retirees guarantee that they will not be able to fund deficits of this size for much longer and Social Security is getting bigger.
What is the Bad Story for Japan
written by Dean, March 21, 2011 1:24
A Sinclair,
Think through what you are saying. Suppose no one outside of Japan wants to Japan's bonds and they can't find buyers inside Japan either. (The fact that the interest rate on 10-year Treasuries is 1.4 percent suggests that they are very far from this point.)

Why wouldn't Japan's central bank just print hundreds of billions of dollars worth of additional yen? Would that cause inflation? Isn't that exactly what Japan's economy wants and needs since it has been suffering with deflation for most of the last two decades? I just don't see a bad story here.

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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.