When Japan Collapses | Hacker News Reader

When Japan Collapses

seekingalpha.com

62 pointsMaro33 comments

Assume all of Greece's debt is external, then the external debts of Greece and Japan are not too different:

          External  Debt     GDP   =  Net
  Greece:    100% * 120% * $ 355bn = $426bn
  Japan:       5% * 200% * $4900bn = $490bn

If Japan defaults, the main effect will be that the Japanese people will be a lot poorer. There will also be some external effects on bond holders, investors in the stock market, and exporters to the Japanese market. I suspect the stoical Japanese have already written off all the govt debt they hold - the default won't exactly be a surprise when it happens.

I suspect the stoical Japanese have already written off all the govt debt they hold

Oh, you suspect wrongly.

Especially since---please correct me if what I've read or remember is wrong---the Postal Agency's Bank, which has most? of the people's savings (that's old info, could be different now that there are more options) has way too much exposure to Japanese government debt.

I suspect the stoical Japanese have already written off all the govt debt they hold

If that were the case, they'd be selling their debt, offloading it on the market, thus pushing the price down, thus bursting the bubble. Since this hasn't happened, I guess they haven't written their gov't papers off yet.

I was exaggerating when I said 'all', but probably 'some'.

By 'stoical' I meant that they might be prepared to take the loss for the country's sake. After all, they could have always got a better rate by investing abroad, even with some currency risk. The existence of the carry trade shows that international financiers have exploited the stoicism or irrationality of Japanese citizens. Perhaps it is just 'not the done thing' in Japan to short your country, pull out your savings and burst the bubble.

As I recall it's only quite recently (last decade or two) that the average Japanese has had a non-yen denominated investment option. As I recall, prior to that there were three options, only one of which was sane:

The Postal Agency's banking system, which is safe.

Regular banks, which are not (latest example I can remember is depositors being presented with loan documents they'd never seen before...). These banks exist for others in the country.

Stocks. I really shouldn't have to say anything more about these (see the system of cross holdings and how uppity investors are dealt with), even ignoring the market's very long term if not permanent plunge. Again, the Japanese stock market as I understand it does not exist for the benefit of individual investors.

(To my knowledge Japan doesn't or at least didn't have anything like our US TreasuryDirect (http://en.wikipedia.org/wiki/TreasuryDirect).)

I agree. No nation will collapse due to internal debt.

> the main effect will be that the Japanese people will be a lot poorer

I'd say the main effect will be a global financial meltdown to end all meltdowns.

For anyone interesting in learning more about the scale of river-paving and publicly-funded construction projects that Japan undertook in the 80s and 90s, then take a look at Alex Kerr's excellent book, Dogs and Demons.

I'd really like to see a breakdown of the structure of Japanese government debt. Since it is almost entirely owed to the Japanese people, what form is that in? Bonds? Does the figure include the balance of people's normal postal-savings accounts? Looking up the figures, the total government debt is roughly equal to the total national savings, so am I right in reading that the government has simply burned the entire nation's savings on building roads and bridges? Banzai! At least they got a spiffy looking country out of the deal. Zero the books and kick out the bureaucrats, and pray that Nintendo keeps selling Wiis.

On the plus side, perhaps Japan's crisis will finally end any shred of belief in the ridiculous Keynesian notion that a country can spend its way out of a recession.

Without getting into the endless ideological debate of supply side vs demand side economics, I think it's clear that the effects of government spending in a recession depend on whether it has saved money in good times. I don't think any Keynesian would claim that governments can do anything other than smooth transitions via anti-cyclical behaviour. Anti-cyclical action has two sides though, not just the spending side.

Well, the UK is currently testing the opposite ridiculous notion - that by laying off lots of government workers (when there already lots of people looking for jobs), reducing benefits to everyone (which hits the poor far harder, of course), and cutting funding to education and research, you'll somehow help the country recover from a recession faster and better.

In fairness to the current administration, this was because the previous one had tested the equally ridiculous notion that if you stimulated the economy when things were going extremely well then debt would never become a problem

Edit: you can downvote me all you like, but that won't change the fact that the previous government ran up public sector borrowing deficits throughout the decade even whilst trumpeting their proud record of uninterrupted economic growth, and the only real disagreement in the political mainstream is over the _speed_ with which it needs to be returned to balance.

I totally agree with your analysis of how the UK got into the current mess. That doesn't really say anything about the best way out of it.

2 wrongs don't make a right

Laying off people who weren't and aren't contributing anything productive, because the country has run up gigantic debts.

There's not any easy answer to this problem (except not to have run up the debts in the first place).

Public sector spending and working practices had been out of control for years - it was clear to anyone with any knowledge of how the public sector worked that it couldn't go on for ever and when it stopped things would be ugly.

There is no doubt that there are a lot of people in the public sector who deliver a lot of value. However, there are also a lot of organisations and people who clearly aren't - a tidy out was long overdue.

You assume that this tidy out will get rid of more of the latter (the unproductive ones) than the former (the value-producing ones).

Indeed, a politically astute friend point out that the first reaction of managers would be to cut productive first line services first. The so called "Washington Monument Syndrome":

http://en.wikipedia.org/wiki/Washington_Monument_Syndrome

Of course, managers who act this way should be the first ones kicked out...

Laying off people who weren't and aren't contributing anything productive

Saying that UK public services are inefficient is one thing, probably true.

Saying that the layoffs can be confined to people who "aren't contributing anything productive" and be extension health, policing, education, research etc will not get worse at all is an entirely different thing, and I don't think it's true.

I don't think you can blame it only on Keynesian economics. In addition to government spending you also had a populace that was excessively thrifty. With all this money in savings banks had to travel farther to find good investments. To survive they had to take the money out of their economy.

The problem I see is that it was all spent on construction work, and in particular white elephant construction work, which just had a temporary input.

I would argue the result would be different if the investment had been in new fields if these fields went on to be useful/successful.

Particularly, I think it's a good idea for the US to invest in clean/green energy atm. This would hopefully increase the efficiency of the system as a whole as well as create jobs.

"If it moves, tax it. If it keeps moving, regulate it. And if it stops moving, subsidize it." --Reagon

For the record, the complaint most "ivy league nobel prize economists" have with Japan's behavior is not the quantity of spending, but the type -- they didn't force banks to recognize losses, instead allowing them to renegotiate loans on much more favorable terms, ignore nonperforming loans, etc -- anything to avoid having to bring the losses on books, take the hit, and start over. This causes a lack of loan availability for more than a decade.

Perhaps next time this, err, nobody ("James Quinn is a senior director of strategic planning for a major university") feels like trashing world class economists, he could discuss their actual opinion?

I'm pretty sure that "ivy league nobel prize economists" == Krugman.

It's a fair response to Krugman - Krugman mostly doesn't discuss mechanisms, details, or include caveats. He just pushes the assertion more spending is good, if stimulus failed it's because it wasn't big enough, etc. Occasionally he makes false accusations against his ideological opponents (e.g., the Paul Ryan fiasco).

If a columnist is responding Paul Krugman or Glenn Beck types, you shouldn't expect much in the way of depth.

> Paul Krugman or Glenn Beck

By equating these two in the same sentence, you undermined all credibility in your previous message. Sorta sad to see an implosion like that.

Not sure why you object. They are both cheerleaders for their respective teams, heavy on rhetoric, light on facts, willing to bend the truth, primarily preaching to the choir with appeals to emotion (intellectual smugness/moralism in Krugman's case, tribalism/moralism in Becks case).

But I suppose I am being a bit unfair in one respect. Unlike Krugman, Beck is occasionally willing to admit that some of the other teams ideas are not that bad (e.g., gay marriage).

Wait, is Beck the guy who calls anything drawn on his blackboard "facts" and Krugman the guy who won that Nobel thingy?

"World class economists" disagree a lot more on economics than world class physicists disagree about inclined planes. For every Krugman there is a Becker, a Hayek, a Friedman. So argument from authority just plain doesn't work in this area.

That's right, but ignoring the point these economists are making doesn't help either. The inability of Japan to deal with bad loans is recognised as a major policy failure by all economists I have ever heard comment on it. Reducing all economic questions to "does government spending work?" is a mistake in my view.

wow! you really think 2 dead people disagree much with Paul Krugman?

you can downvote me all you want, comparing Krugman to Hayek and Friedman is just plain idiotic.

While these two (together, or shall I say in opposition with Keynes) helped lay an important parts of foundation of modern economics, their ideas are just about as relevant nowadays as Newton mechanics to building an interstellar spaceship.

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