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Home Publications Blogs Beat the Press Washington Post Decides That the Markets Are Wrong About Japan

Washington Post Decides That the Markets Are Wrong About Japan

Monday, 14 March 2011 08:59

The financial markets seem relatively unconcerned about Japan's fiscal situation as evidenced by the fact that investors are willing to buy 10-year Treasury bonds from the Japanese government at an interest rate around 1.4 percent. Nonetheless, the Washington Post told readers that:

"Japan is already groaning under government debt equal to twice its yearly economic output."

As a result of the low interest rate on its debt, Japan's interest burden is actually smaller measured as a share of GDP than the interest burden in the United States. Also, close to half of Japan's debt is held by its central bank. The interest paid on debt held by the central bank is refunded to the government and therefore imposes no burden on Japan's budget.

Also, Japan has no fears whatsoever of inflation. As the article notes toward the end, many forecasters project that the economy will weaken further as a result of the earthquake/tsunami and cause another burst of deflation.

Comments (7)Add Comment
written by izzatzo, March 14, 2011 11:03
Any economist knows the earthquake and nuclear explosion was caused by demand pull forces driven by record quantitative easing that pushed the utilitization factor of the land mass and electricity production above an unsustainable 100%.
written by kharris, March 14, 2011 3:11
No need to stop with the Post. I'm pretty sure that Reuters, Bloomberg, the NYT, and just about any press outlet which pretends to have some financial insight to offer has written similar things.
More Keynesian Nonsense
written by Tony, March 14, 2011 4:45
I just cannot believe that a Neo-Classical Keynesian economists like Dean, who granted was one of the few who called the great recession, would have the kind of attitude that he has about Japan. While it is true, that so far, Japan's debt has not caused either inflation, or as a few have predicted, hyperinflation, that could change at any time in the future. There are so many ways, either through government action or the action of the citizens of a country deep in debt, that could turn deflation into inflation. Japan has been able to get away with it, because almost all of their debt is financed domestically by the Japanese Bob Hope generation, who have a great pride in their country, and will finance the debt, no matter how low interest rates are in there country. But they are dying out, and there children do not appear to have either the interest, or money to follow in there parents footsteps. There are many who believe that this process will start changing in Japan within the next few years. Then where is Japan going to get there money from? Even if Japan can somehow get the money without causing high inflation, do you really think Japan is a success story? They have been kicking the can down the road for twenty years and where has it got them? Just deeper in debt. Only a Keynesian would try to make the case that high debt does not matter, or that a country with a sovereign currency can get away with high debt. Although it is true that there is no perfect or even near perfect economic model out there, either from Keynes, Friedman or the Austrian School, to me Hyman Minsky, Irving Fisher and the Australian Economist Steve Keen have it closest to the true and that is that debt matters, and excessive debt is what is causing the ecomonic problems in the world today. Japan's way of handling there problem is not the solution in my opinion.
Minsky Considered Himself to be a Keynesian
written by Paul, March 14, 2011 9:22
You do know that Tony, don't you?
Yes I know Minsky was a Keynesian
written by Tony, March 15, 2011 6:26
But he was a special kind of Keynesian. His financial instability hypothesis is in my opinion, the best theory I know on explaining how capital markets work, and what we can do to try to reduce the endless booms and bust that we go through. I have issues with some of Minsky as well, but again I must stress, the road of Japan is not the road I want to follow. It looks like Japan is going back into recession, and according to economist Ronald Muhlenkamp, Japan is finished. Yes, they will get plenty of aid for the damage done by the earthquake, but if I was a foreign investor, I would refuse to invest any money in there country. They are going to have to change there ways big time, before I am willing to invest any money into there country.
News Flash Tony: Japan Doesn't Need Your Money
written by Paul, March 15, 2011 12:55
Japan is sitting on a current account surplus of nearly a trillion dollars.

Japan can print yen in whatever quantity is needed to rebuild their country, just like they did after WWII.

Why would Japan go into another recession when it is obvious that it will spend massive amounts of money to clean up and rebuild. If anything, Japan will face a labor shortage and inflation.
Partially Right
written by Tony, March 15, 2011 4:09
Yes, Japan has about a trillion dollars in reserve, but this money is in U.S. treasuries, which they do not want to sell, since this will make there Yen rise, which they do not want, since they are still a export nation. If they could spend this money with all the problems that they have now, don't you think that they would have done this a long time ago? While Dean tries to make the case that Japan's low interest rates signal that everything is more or less okay, I see it the other way. In my 22 years of studying economics and finance, one thing I learned is that you do not want either too low or too high interest rates. Japan's low interest rates tell me one thing and that is people are scared in Japan, and that is why they are buying treasuries. And Japan has gone through three recessions in the last 15 years, despite that they did not have a inverted yield curve, which usually leads most recessions. And in my opinion, with the selloff in the Japanese stock market the last two days, the odds are very high that another recession is just around the corner. Even Professor Roubini has said the same thing. The one thing that I do agree with you with, is that I think inflation is indeed the future for Japan. This may or may not be a good thing for Japan, but rebuilding there country with there 200% debt to GDP makes me think that finally, Japan is going to see inflation.

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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.