The Japanese own their own debt so they don’t have a problem. Right?

Wrong.  Even though those of us who argue that National Debts are not quite the huge monsters of popular neo-liberal supposition often point to Japan.  Japan manages to function very effectively with a debt to GDP ratio which is over 200%,  and more than double the US and UK’s national debt ratios.

All debts and deficits are caused by people, organisations, and countries wishing to save ££, $$ or Yen or whatever. If money issued by the US, UK or Japanese governments ends up being held by the central banks of the big exporters, or by their own citizens,  and who don’t wish to spend it, then these countries have to be in debt in accounting terms.

The only solution, if indeed there is a problem of debts owned by foreign countries, is to go back to countries imposing tariff barriers to protect their trade zones and prevent the build up of these kinds of financial imbalances. That caused wars in the past and would again in the future. It isn’t a good option.

It is usually pointed out by supporters of the neo-liberal orthodoxy that Japan manages to have such a high state debt by also having lots of savers who lend the money to the government. It is, therefore, not external debt and so is a lesser problem  True, Japan usually has a trade surplus and “pays its way” abroad.

However, internal debt can be more destabilising than external debt. If Japanese savers get spooked about a potential inflation they would all start over-spending simultaneously which could set off the problem they most fear. It would be politically very difficult for the Japanese government to control that by applying taxes on its own citizens. So whereas the debt isn’t at all a direct problem for the Japanese Government, the ownership of too many financial assets by the Japanese population could give them one.

On the other hand, if their debt were owned by a foreign country, say in the form of Japanese treasury bonds, it would be somewhat different. All that country could do , if it wanted to spend its Japanese Yen, would be to give large orders for real goods and services to Japanese industrial companies. It would boost Japanese exports tremendously. That too could be inflationary, but the situation would be more manageable. The Japanese government would be able to negotiate with its foreign creditors to spend at an agreed rate. As a last resort it could even impose a tax on its own exports.

That’s essentially the position the USA is in with regard to its Chinese creditors. If there is really a problem with debts,  it is China who has the bigger one than the USA. Japan has a bigger problem too. Not so much because it has a larger debt but because it is, rather than isn’t, largely owned by its own citizens.


3 responses to “The Japanese own their own debt so they don’t have a problem. Right?

  1. not true. Your arguments assume steady state economics, typical of MMT. What happens when Japan no longer runs a net surplus – where will its borrowing come from. Higher rates. Japan will default one day, just none of us know which one.
    Or it could get its Debt-GDP ratio down. But MMT people like to think of the magic money tree and constant debt funding of everything so would never argue for that.

    • There’s no such assumption. Providing Japan denominates its debt in Yen the Japanese will never have to worry about “where will its borrowing come from”. The Yen is the monopoly of the Japanese government. No-one can tell the Japanese they can’t borrow in Yen. They never need to involuntarily default.

      Of course, like all sovereign currency issuers, the Japanese have to steer a sensible course between protecting the value of the Yen, by limiting inflation, and running their economy at close to its maximum potential.

  2. Have you seen CMMT? It is like MMT but not counting bonds as money. With this small change hyperinflation is really easy to explain without any external debt, war, supply shock, etc.

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