I often talk about the problems of the United States economy but there is a nation that is about to go into a death spiral right now. That nation is Japan. Because of debt, aging population and a nation that is having few children, Japan is about to go into a economic and demographic death spiral from which it cannot recover without defaulting on their debt and without a new economic world order being established.<\/p>\n
Japan just went through two lost decades where the economy has been flat but they have seen nothing yet. Facts don’t lie. National suicide is not a understatement for Japan if you look at the economic and demographic facts and figures.<\/p>\n
Japan’s national debt is 200 percent of its GNP and projected to go to 250 percent by 2015.<\/strong> This is almost twice the debt load of any developed nation in the world. The only way Japan gets away with having so much national debt is that it has been owned to themselves. Japan’s government is borrowing for their huge budget deficits and paying people in Japan ridiculous low .o5% interest rates to finance the debt. This only can be done because the Japanese people historical have been a nation of savers. They have made more money than it takes for them to live and they have saved the surplus.<\/p>\n However, here lies the fatal problem for Japan and it cannot realistically be resolved. Their population is rapidly aging and their saving rate as a result is now rapidly falling. People reaching old age sell their bonds so they can live in their retirement. The savings rate in Japan has fallen from about 15 percent of their income in the 1990’s to about 2 percent today<\/strong> and it will go into negative territory as more old people cash in their savings to live on in their retirement.<\/p>\n Right now Japan pays over 60 percent of its entire tax revenues just to pay the interest on their nation debt and that is with an interest rate of only .05% .<\/strong> When the aging Japanese are forced to sell these bonds to foreign investors because there are not enough young Japanese to buy them anymore they will have to pay world interest rates. The only reason foreign investors have also been willing to buy treasuries paying .05 percent Interest is that the Yen has been steady appreciating against other currencies, so they make their money when they convert it. But, with the increased selling for retirement and the debt threat to Japan, the Yen will stop appreciating and even fall, and then world investors will demand more normal or even high risk interest rates. <\/strong><\/p>\n Do you realize that if world investors demanded just 3.5% interest rate returns on Japanese bonds, that all the money that Japan collects in tax revenue would not even be able to pay the interest on their national debt. Japan would then have to default.<\/strong><\/p>\n Its not even a matter of if Japan will have to pay that interest rate, it is just a matter of when. Japan is the third largest economy in the world with an economy on par with China. If Japan cannot pay its debts and goes into default the fat lady will have sung for the world economy.<\/p>\n If you look at the demographics of Japan you cannot help but notice the rapidly aging\u00a0 population with falling population numbers. They could not possibly continue to pay the interest on their huge national debt. The population of Japan peaked around 2000 and from then until at least the end of the century the population will rapidly be in decline. By 2100 Japan will only have about a third of the population and only have one third the working force that it has today. But, the debt crises will arrive long before then. In fact, the run on the Yen causing the demand for higher interest rates could happen tomorrow.<\/p>\n Remember Greece? There would have been a major world economic crises if Germany and the IMF had not bailed out Greece. But Greece only owes about one half per capital on the national debt as the Japanese and Japan’s economy is 14 times larger than that of Greece. So to put things in proper perspective we are talking about a crises about 25 times as large<\/strong>. Who will be able to bail out Japan? It simply cannot happen. Large investors in Japanese treasuries are going to go bankrupt or they will be bailed out by their own national governments. But, who will bail out the Japanese that are holding treasuries that the government cannot pay? What happens to a nation that cannot pay the debt it owes\u00a0 to its own people and cannot borrow more even to run national government? Seems we are about to find out.<\/p>\n Right now the Yen is at an all time peak but you know how these bubbles work. They peak, the bubble cannot be sustained, and then the bubble collapses. If you look at the demographics of Japan it is obvious that those that bet against the appreciation of the Yen in the long haul really cannot lose.<\/p>\n I guess the only thing that could change the age imbalance demographics in the short term is for Japan to open its doors wide open to highly skilled young immigrants. That would have to occur for a period of several decades with new immigrants continuing to replacing the old and dying. However, you know as well as I, that this will not happen in Japan. I guess they could keep raising the retirement age in Japan, but the workforce numbers would still continue to decline as the Japanese die off and I doubt if a workforce of old old geezer could be competitive on world markets.<\/p>\n