Japan's massive government debt conceals
massive benefits for the Japanese people, with
lessons for the US debt "crisis".
In an
April 2012 article in Forbes titled "If Japan Is
Broke, How Is It Bailing Out Europe?", Eamonn
Fingleton pointed out the Japanese government was
by far the largest single non-eurozone contributor
to the latest euro rescue effort. [1] This, he
said, is
"the same government that has
been going round pretending to be bankrupt (or at
least offering no serious rebuttal when benighted
American and British commentators portray Japanese
public finances as a trainwreck)."
Noting
that it was also Japan that rescued the
International Monetary Fund (IMF) system virtually
single-handedly at the height of the global panic
in 2009, Fingleton asked:
How can a nation whose government is
supposedly the most overborrowed in the advanced
world afford such generosity? ...
The
betting is that Japan's true public finances are
far stronger than the Western press has been led
to believe. What is undeniable is that the
Japanese Ministry of Finance is one of the most
opaque in the world ...
Fingleton
acknowledged that the Japanese government's
liabilities are large, but said we also need to
look at the asset side of the balance sheet:
[T]he Tokyo Finance Ministry is
increasingly borrowing from the Japanese public
not to finance out-of-control government
spending at home but rather abroad. Besides
stepping up to the plate to keep the IMF in
business, Tokyo has long been the lender of last
resort to both the US and British governments.
Meanwhile it borrows 10-year money at an
interest rate of just 1.0%, the second lowest
rate of any borrower in the world after the
government of Switzerland.
It's a good
deal for the Japanese government: it can borrow
10-year money at 1% and lend it to the US at 1.6%
(the going rate on US 10-year bonds), making a
tidy spread.
Japan's debt-to-GDP (gross
domestic product) ratio is nearly 230%, the worst
of any major country in the world. Yet Japan
remains the world's largest creditor country, with
net foreign assets of US$3.19 trillion. In 2010,
its GDP per capita was more than that of France,
Germany, the UK and Italy. [2] And while China's
economy is now larger than Japan's because of its
burgeoning population (1.3 billion versus 128
million), China's $5,414 GDP per capita is only
12% of Japan's $45,920.
How to explain
these anomalies? Fully 95% of Japan's national
debt is held domestically by the Japanese
themselves. [3] Over 20% of the debt is held by
Japan Post Bank, the Bank of Japan, and other
government entities. Japan Post is the largest
holder of domestic savings in the world, and it
returns interest to its Japanese customers.
Although theoretically privatized in 2007, it has
been a political football, and 100% of its stock
is still owned by the government. The Bank of
Japan is 55% government-owned and 100%
government-controlled.
Of the remaining
debt, over 60% is held by Japanese banks,
insurance companies and pension funds. Another
chunk is held by individual Japanese savers. Only
5% is held by foreigners, mostly central banks.
[4] As noted in a September 2011 article in The
New York Times:
The Japanese government is in deep
debt, but the rest of Japan has ample money to
spare. The Japanese government's debt is the
people's money. They own each other, and they
collectively reap the benefits. [5]
Myths of Japan's debt-to-GDP
ratio Japan's debt-to-GDP ratio looks bad.
But as economist Hazel Henderson notes, this is
just a matter of accounting practice - a practice
that she and other experts contend is misleading.
[6] Japan leads globally in virtually all areas of
high-tech manufacturing, including aerospace. [7]
The debt on the other side of its balance sheet
represents the payoffs from all this productivity
to the Japanese people.
According to Gary
Shilling, writing for Bloomberg in June 2012, more
than half of Japanese public spending goes for
debt service and social security payments. Debt
service is paid as interest to Japanese "savers".
[8] Social security and interest on the national
debt are not included in GDP, but these are
actually the social safety net and public
dividends of a highly productive economy.
These, more than the military weapons and
"financial products" that compose a major portion
of US GDP, are the real fruits of a nation's
industry. For Japan, they represent the enjoyment
by the people of the enormous output of their
high-tech industrial base.
Shilling
writes:
Government deficits are supposed to
stimulate the economy, yet the composition of
Japanese public spending isn't particularly
helpful. Debt service and social-security
payments - generally non-stimulative - are
expected to consume 53.5% of total outlays for
2012.
So says conventional theory, but
social security and interest paid to domestic
savers actually do stimulate the economy. They do
it by getting money into the pockets of the
people, increasing "demand". Consumers with money
to spend then fill the shopping malls, increasing
orders for more products, driving up manufacturing
and employment.
Myths about
quantitative easing Some of the money for
these government expenditures has come directly
from "money printing" by the central bank, also
known as "quantitative easing". For over a decade,
the Bank of Japan has been engaged in this
practice; yet the hyperinflation that deficit
hawks said it would trigger has not occurred. To
the contrary, as noted by Wolf Richter in a May 9,
2012 article:
[T]he Japanese [are] in fact among
the few people in the world enjoying actual
price stability, with interchanging periods of
minor inflation and minor deflation - as opposed
to the 27% inflation per decade that the Fed has
conjured up and continues to call, moronically,
"price stability." [9]
He cites as
evidence the following graph from the Japanese
Ministry of Internal Affairs:
How is that possible? It all depends on
where the money generated by quantitative easing
ends up. In Japan, the money borrowed by the
government has found its way back into the pockets
of the Japanese people in the form of social
security and interest on their savings. Money in
consumer bank accounts stimulates demand,
stimulating the production of goods and services,
increasing supply; and when supply and demand rise
together, prices remain stable.
Myths
about the 'lost decade' Japan's finances
have long been shrouded in secrecy, perhaps
because when the country was more open about
printing money and using it to support its
industries it got embroiled in World War II. [10]
In his 2008 book In the Jaws of the Dragon,
Fingleton suggests that Japan feigned insolvency
in the "lost decade" of the 1990s to avoid drawing
the ire of protectionist Americans for its booming
export trade in automobiles and other products.
Belying the weak reported statistics,
Japanese exports increased by 73% during that
decade, foreign assets increased, and electricity
use increased by 30%, a tell-tale indicator of a
flourishing industrial sector. By 2006, Japan's
exports were three times what they were in 1989.
The Japanese government has maintained the
facade of complying with international banking
regulations by "borrowing" money rather than
"printing" it outright. But borrowing money issued
by the government's own central bank is the
functional equivalent of the government printing
it, particularly when the debt is just carried on
the books and never paid back.
Implications for the 'fiscal
cliff" All of this has implications for
Americans concerned with an out-of-control
national debt. Properly managed and directed, it
seems, the debt need be nothing to fear. Like
Japan, and unlike Greece and other eurozone
countries, the US is the sovereign issuer of its
own currency.
If it wished, congress could
fund its budget without resorting to foreign
creditors or private banks. It could do this
either by issuing the money directly or by
borrowing from its own central bank, effectively
interest-free, since the Federal Reserve rebates
its profits to the government after deducting its
costs.
A little quantitative easing can be
a good thing, if the money winds up with the
government and the people rather than simply in
the reserve accounts of banks. The national debt
can also be a good thing. As Federal Reserve Board
chairman Marriner Eccles testified in hearings
before the House Committee on Banking and Currency
in 1941, government credit (or debt) "is what our
money system is. If there were no debts in our
money system, there wouldn't be any money." [11]
Properly directed, the national debt
becomes the spending money of the people. It
stimulates demand, stimulating productivity. To
keep the system stable and sustainable, the money
just needs to come from the nation's own
government and its own people, and needs to return
to the government and people.
Ellen Brown is an attorney and
president of the Public Banking Institute, PublicBankingInstitute.org.
In Web of Debt, her latest of 12 books, she
shows how a private cartel has usurped the power
to create money from the people themselves, and
how we the people can get it back. Her websites
are webofdebt.com and
ellenbrown.com.
Head
Office: Unit B, 16/F, Li Dong Building, No. 9 Li Yuen Street East,
Central, Hong Kong Thailand Bureau:
11/13 Petchkasem Road, Hua Hin, Prachuab Kirikhan, Thailand 77110
