Tuesday, April 13, 2010

Japan's 'No-Way Out' High Debt Is Due To Massive Stimulus: Is This The U.S.' Future?

As we saw on the chart by the Bank of International Settelements that we posted yesterday, Japan's Public debt is expected to hit a stagering 200% GDP in 2011 and will continue to climb. Like the U.S and the U.K., Japanese government is spending massively trying get out of the economic recession.

Japan's Public debt/GDP:

However, the spending it is not working, and it appears it simply cannot work. Japan's tax revenues continue to drop (like the U.S.) and its population is not only ageing, but is now declining. Please take a look at this chart showing Japan's population projections:

In numbers: by 2105, Japan's population will have dropped from its current 127M to around 45M.

And mostly old people. What is the doubt here?

Japan's debt is estimated to reach around 950 trillion yen, approximatelty 7.5 million yen per person. It's major problems:

  • deflation
  • high public debt
  • weak domestic demand
  • ageing population
  • declining population

What is very worrying is that it appears that Japan's huge public debt is due to huge stimulus spending during its economic "lost decade" of the 1990s, as well as recent packages.

This is precisely where the U.S is at now.

The U.S.' advantage is that is population is not ageing as badly, but is still ageing, and that the U.S. is more open to immigration.

Still, major changes are needed to rectify this trajectory, if at all possible.

Japan's ETFs are tracked live here, and the Yen ETFs are tracked here.

EWJ is the main ETF. It is up 10% since January 2009:

FXY is the major currency ETF. It is down 3.4% since January 2009:

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