Is Japan Doomed?

More

In the United States, deficit hawks see our public debt growing to 70 percent of the size of our economy and warn about a fiscal collapse. On the other side of the globe, however, Japan's debt has steadily grown to 200 percent of its GDP. How is that country still standing?

One big reason is that Japan owes the debt to itself, whereas we borrow half our debt from overseas. Japanese families and businesses have been willing to plow their savings into Japanese bonds, which keeps interest rates much lower than they would be if Japan relied on the international bond market, like the United States.

In a smart essay on the (small but present) likelihood of a full-scape Japanese collapse, Slate's Bethany McLean reveals this stunning fact:

And as deflation struck the Japanese economy, the interest rate on its outstanding debt has fallen to an average of a mere 1.5 percent ... If Japan's interest rates merely doubled, from 1.5 percent to 3 percent, then interest expense would be more than half of the government's tax revenues.

This wouldn't be a big deal if Japan's population was young, growing, and looking to save. Instead, Japan is old, stagnant and saving less and less every year. So who's going to invest in Japanese debt while its retirees are drawing out savings while its younger working-age generation is small and spending money instead of parking it in government bonds?

McLean offers some answers in Slate.

Jump to comments
Presented by

Derek Thompson is a senior editor at The Atlantic, where he writes about economics, labor markets, and the entertainment business.

Get Today's Top Stories in Your Inbox (preview)

A Technicolor Time-Lapse of Alaska's Northern Lights

The beauty of aurora borealis, as seen from America's last frontier


Join the Discussion

After you comment, click Post. If you’re not already logged in you will be asked to log in or register. blog comments powered by Disqus

Video

A Time-Lapse of Alaska's Northern Lights

The beauty of aurora borealis, as seen from America's last frontier

Video

What Do You Wish You Learned in College?

Ivy League academics reveal their undergrad regrets

Video

Famous Movies, Reimagined

From Apocalypse Now to The Lord of the Rings, this clever video puts a new spin on Hollywood's greatest hits.

Video

What Is a City?

Cities are like nothing else on Earth.

Video

CrossFit Versus Yoga: Choose a Side

How a workout becomes a social identity

Video

In Online Dating, Everyone's a Little Bit Racist

The co-founder of OKCupid shares findings from his analysis of millions of users' data.

Writers

Up
Down

More in Business

Just In