Japan


The Daily Telegraph did an article on Japan today entitle that pointed out how much worse their debt situation is than any major economy in the world.  For instance, the US has an out of control debt problem with its debt to gdp ratio going over 100% this year.  That is pretty bad but compared to Japan it seems almost trivial because the Japanese debt to gdp ratio is at 239%.  That is astounding, but Japan has been able to pull off high debt to gdp ratios for quite some time.  Unfortunately for Japan things might beginning to change.  This is because historically they were able to self finance this large government debt because they had such high personal savings rates which the article said used to be around 13% of income.  Now that has fallen to less than 3%.  This is in stark contrast to the US deficit which is heavily supported by foreign investors.  Couple that with the fact that Japan used to run a sizeable trade surplus that has now in the wake of the recent tsunami turned into a trade deficit and problems financing this debt could become serious.  The trade deficit is only expected to get worse because Japan used to rely so heavily on nuclear energy but since the melt down of a reactor during the tsunami the last Japanese reactor will soon go off-line.  That means importing all of their energy needs which will only exasperate the trade deficit, making it even more difficult to continue to finance their debt.  Here is the link to the article

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