While people have been calling for a Japanese debt blowup for years, at some point you have to say the level of government debt there is getting ridiculous. If the United States is able to get away with its borrowing habits for a few more years, here is a flavor of what we may have to look forward to.
1. Japanese debt accounts for over 230% of the country’s GDP (Gross Domestic Product). We think we have it bad in the U.S. at 100% of GDP!
The debt equates to around $86,000 per Japanese man, woman and child.
2. Thankfully the Japanese government can borrow at only 1% interest currently. Even still, this year, 52% of all Japanese tax revenues will go to paying interest on the country’s debt.
3. If interest rates were to rise even a percentage or two, this would quickly double the already burdensome interest bill.
4. Finances are so bad, that the Japanese government will have to borrow 56% of every yen it spends in 2012!
Chart Source: Brian Kelly
5. Luckily for the government, 94% of JGBs are held within Japan. Much of that is owned by government-owned or controlled institutions such as the public pension fund. These institutions have been co-operating in holding the bonds, even though the yields on those investments are miserably low.
6. Unfortunately, Japan’s ageing demographics are such that these levels of borrowing may soon be impossible. 23% of the population is now aged over 65. There are so many seniors that pension funds are now net sellers of government bonds in order to fund payouts. By 2025 it is estimated that Japan’s over 65’s will account for over 30% of the population.
7. Japanese birth rates are so low that the country’s population peaked in 2005 and some estimate the population will have fallen 30% by 2055 (Japan allows very little immigration). This means less and less workers to milk tax revenues from. .
8. Retirees tend to spend rather than save and Japanese economic growth has been sluggish since their stock and housing bubble burst in 1989. The average Japanese citizen’s savings rate has plummeted to 3% from 24% in the 1970s. Lower savings means less demand for government debt.
9. Japan’s Ministry of Finance estimates that over 70% of tax revenues will go to pay Social Security in 2012. Social security payments are expected to rise by 34% by 2025.
10. Kyle Bass compares Japan’s debt dynamics to a Madoff-like Ponzi scheme and predicts it will implode in the next few months. Kyle made a fortune on the housing bubble crash. We shall see if he correctly predicts the timing of the end of Japan’s long lived debt bubble.
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