Japan is currently in the process of monetising its vast debt (in plain English, printing money). To get some scale of the issue, check out this following news report from the Japan Times.
Japan’s national debt hit a record-high ¥1.025 quadrillion at the end of March, up ¥33 trillion from a year earlier, the Finance Ministry said on Friday. The central government debt, which increased ¥7 trillion from the end of December last year, kept rising mainly due to ballooning social security costs in line with the aging population. The balance of government bonds, financing bills and other borrowings crossed the ¥1 quadrillion mark for the first time ever at the end of June 2013.
Here is a definition of what is a Quadrillion. Even at the dollar-yen exchange rate of one dollar buying 101 yen, this is a scary, but also barely comprehensible, sum of money. That leads me to the view that the public no longer can really get to grips with how massive debt, both in funded and unfunded, forms is, and indeed with the very notion that a lot of this debt is not even “on the balance sheet”.
This is all fine. Nothing to worry about. Like the article says, it’s “in line with” the aging population. It’s only when printing money is out of line with an arbitrarily chosen factor that alarm bells should start ringing.
Plus, think of how much the Japanese economy is going to be stimulated by all that lovely new money It’s a win-win situation. Nothing can possibly go wrong!
The Japanese population is not only aging, it is declining. So the per caput debt is rising faster than the total debt. This cannot end well. It is also the European future. And Third World immigrants exacerbate the problem because they are mostly dependents, not producers.
That’s about $78000 per capita, or twice the GNP.
The Japanese started doing all this stuff nearly 20 years before everyone else. Plus, they have worse demographics than Britain or America, although maybe not one or two continental European countries. Therefore it is likely that we will see how it will play out in Japan first. Who knows, we might even learn something when that happens.
It’s no good picturing vast amounts of money like that as a stack of notes stretching to the Moon and back. Try thinking of it as time. One Trillion seconds adds up to 32,000 years. So if someone was to physically start printing Yen at one a second, that’s how long it would take.
So I think we can all see, there is no money, it is all an illusion, an accounting trick, mere electrons on a flickering screen.
“A billion here, a billion there, and pretty soon you’re talking about real money.” That used to be a joke.
In the early 1920s the post World War One credit bubble burst – in all major countries save Japan.
I Japan the authorities refused to allow the credit bubble to burst – with passionate intensity they refused to allow the bust to happen.
However, eventually the distorted capital structure became unsupportable and the Japanese economy collapsed (in 1927 – two years before the Wall Street Crash and the end of the Benjamin Strong credit bubble).
Constitutional government broke down in Japan – replaced by a series of open or disguised military dictatorships.
What will happen now?
Now the Capital structure is vastly MORE distorted than it was in the late 1920s?
I do not exactly what will happen – what form the horrors will take.
But I do know that now the whole Western World is like Japan.
Didn’t Hirohito say rather blandly in his mid-August 1945 broadcast to the nation “The situation has developed not necessarily to Japan’s advantage.“?
Won’t it all be like Argentina is today? Inflation, import restrictions, currency restrictions, poverty, chaos and absurdity as national policy.
Yes, Mr Ed.
When it all bursts guess what will get the blame? Yep, Capitalism.
Not without some justification: in the real world, capitalists eventually discover that the best investment is a politician. This is why I’ve become a Dilbertarian.
I understand the point that Johnathan is making, but feel that even ordinary people (ie not economists) ought to be able to get a grip on this sort of thing.
A quadrillion (in currency terms) is but one thousand trillion (and we are as used to that for national economies as we are with millionaires now being unexceptional). More risky is the 1.025: it might be interpreted by Continentals as 1,025.
As to means for us ordinary people to get this grip, how about (as Bruce Hoult comments above) using the amount of debt per head of population. As $80,000 each (babies, children and the aged and retired get no relief), perhaps most people can see that this is not really desirable.
Then (again, thanks Bruce) we can look at those world maps, colour coded showing national debt as a percentage of GDP – so it’s how big is the personal debt for each and every member of your family, compared to the family earnings per family member. [Though, God knows, there are as many variations on the definition of national debt as there are on GDP!!]
We can have a historical view; sorry I have only found a long-term view for the UK. So big war is definitely bad – though perhaps economically cathartic: until everyone forgets and starts blowing hard-earned prosperity on partying. [Thinks: good old Maggie. Not much governmental partying on her watch. Pity debt over GDP has more than doubled under the guidance of Brown and Cameron – doubtless ably assisted by the Blair legacy.]
And here is Japan over the last few decades. Remind me; did they fight any big wars? No!?
So what is the problem with First World governance?
Is it really as simple as borrowing against (or spending) everyone’s state pension: and believing it is still there?
Best regards
And almost on the other side of the world in Argentina, when the numbers on the notes get too small, people draw cartoons on them, as per this BBC report (in Spanish, but the pictures say it all).
http://www.bbc.co.uk/mundo/video_fotos/2014/05/140505_galeria_argentina_billetes_new_vs.shtml
Nigel: “Still”? Was it ever there? It goes straight from the worker’s paycheck to them pensioner’s wallet is my understanding. It was insanity to think this could ever lead to good things. But insanity that the politicians at the time would not have to deal with.
Looking at it as an addition to your mortgage illustrates the point pretty well. According to http://www.debtbombshell.com/ the per capita amount (relative to the working population) in the UK is £44K. Not peanuts by any means but probably no more than 15% of the average house value. At current levels it’s manageable to pay back but I wish they’d just stop digging and balance the budget already! Most countries are in a position to do something about their situation – it is the will (and understanding) that is lacking.
“A billion here, a billion there, and pretty soon you’re talking about real money.” That used to be a joke.
I remember when it was relayed using the word “million”.
In the UK, reality and satire are merging at the Daily Mash.
http://www.thedailymash.co.uk/news/business/bank-of-england-doesnt-know-how-to-raise-interest-rates-2014051586580?fb_action_ids=10152091371716657&fb_action_types=og.likes
I am given to understand the last balanced budget was Nigel Lawson. That was some time ago.