LAST WEEK, Japanese Prime Minister Ishida called Japan’s economic situation “worse than Greece.”
It was a big mistake because it only made the markets worse than it needed to be.
Japan’s economy has several problems but to compare it to Greece is misleading. Greece’s problem was that most of its debt was held by foreign investors, whereas Japan’s debt is largely held by locals.
Nevertheless, Japan’s bonds are in a bad situation, and they have very few options. Their debt-to-Gross Domestic Product is 263%, which is to say they owe more than two and a half of Japan’s total economic activity. Interest rates offer few options, and protests are growing, as far as I can tell from online pictures and videos.
The “good” news, if you can call it that, is that most of this debt is owned by the Japanese, who have a strong bias in favor of local assets.
But here’s the issue about debt. It’s only sustainable if the lender believes that they can get their money back. When the risk becomes too great or if they think the debtor cannot pay what he already owes, things get worse.
Overall, Japan seems to be headed for an economic rebalancing, which will most likely be accompanied by political and possibly, geopolitical rebalancing. The old economic model, which the country has used to resurrect itself after World War II, no longer works, and Japan must not only develop a new model; it must also find a new niche/identity in the post-post-war order.
But Japan is not alone. The United States, China and much of the European Union are also in similar economic situations. The one thing that ties them all together is debt, that and shrinking productive demographics.
China, in particular, is particularly relevant because it is following the same model as Japan.
The important point here is that the economic situation all over the world looks bleak and is expected to become bleaker in the years to come. Tech bros like Elon Musk hope that artificial intelligence and robotics could provide boosts in productivity, such that indebted countries could grow themselves out of debt. But that is something we will all have to wait and see./PN
