Japan Spirals into Bankruptcy?

m22au said:
If the BoJ buying is free of negative consequences (such as inflation), then why bother collecting a single JPY of taxation revenue? You could just get the BoJ to purchase 100% of the government's outstanding debt, as well as 100% of the government's future issuance. (Imagine how popular one would be as a politician proposing zero taxes!) This would be a silly proposition.

I doubt your "basically free lunch" assertion. Is there any amount of BoJ purchases that you believe will cause a significant depreciation in the JPY? Or do you believe the "basically free lunch" exists for any amount of BoJ purchases?
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well, I really don't know why they bother. I think nobody could believe money printing on a such scale can happen without any negative consequnces. But I'm sure in the next few years you will see significant tax reduction in Japan

We don't know how big free launch can be. For now they have free launch and it doesn't seem it will end any time soon. I believe they have at least 10+ years of doing the same thing before anything will change
 
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m22au said:
Your positivity and optimism are all nice and good, but it doesn't really address the issue:

Is there any level at which you think Japan's government debt becomes a massive problem, measured in either (1) government debt to GDP or (2) interest payments as a percentage of tax revenue? For example, will you think Japan can reach 1000% government debt to GDP, and/or interest payments at 99% of tax revenue, without a big adjustment?

Or do you believe that the country can continue to increase its debt burden into perpetuity, while its population of working age residents declines, and that pace of decline is set to increase?
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I'm neither optimistic nor pessimistic. It looks bad but they keep muddling through. When will inflation will kick in? When it does will it be controllable?
 
Martinghoul said:
Government debt is sorta irrelevant in the Japanese context. It's all about a few basic, but difficult choices that Japanese society as a whole has to make. One such choice is whether to permit much more immigration. The other is whether to "pull the plug on Grandma", so to speak. The former is a choice about revenues, while the latter is about expenditure. It's the latter that is so very important, since the majority of government deficit comes from social and welfare spending.
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I think there is another sets of solutions for both choices:

1. They already rejected more immigration. Instead they could encourage or make it mandatary for women to work and boost the economy that way.

2. Instead of pulling the plug on grandma, extend the retirement age and kill two birds with one stone: Save on social and welfare spending and boost the economy.

Pushing out the retirement age is inevitable for the rest for the developed world.
 
ironchef said:
I think there is another sets of solutions for both choices:

1. They already rejected more immigration. Instead they could encourage or make it mandatary for women to work and boost the economy that way.

2. Instead of pulling the plug on grandma, extend the retirement age and kill two birds with one stone: Save on social and welfare spending and boost the economy.

Pushing out the retirement age is inevitable for the rest for the developed world.
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Agreed, but they've actually been doing both those things and it's not sufficient...

As an illustration of point 2, if you've ever taken a cab in Tokyo, you would see. That's what all the retired guys end up doing.
 
The debate is actually over, but one side won't concede defeat.

http://www.nber.org/papers/w15438

"We examine the evidence on episodes of large stances in fiscal policy, both in cases of fiscal stimuli and in that of fiscal adjustments in OECD countries from 1970 to 2007. Fiscal stimuli based upon tax cuts are more likely to increase growth than those based upon spending increases. As for fiscal adjustments, those based upon spending cuts and no tax increases are more likely to reduce deficits and debt over GDP ratios than those based upon tax increases. In addition, adjustments on the spending side rather than on the tax side are less likely to create recessions. We confirm these results with simple regression analysis."

This is a peer reviewed study examining 92 attempts at stimulus since 1970 in OECD countries and the evidence is clear. Tax cuts work. Spending increases don't.
 
FHL,

Good paper, Silvia Ardagna is now at GS...

The LDP pushed for a sales tax increase a couple of years ago, hoping to achieve a primary surplus (balanced budget excluding debt servicing/interest payments) by 2020. The real end goal is to avoid a sovereign credit downgrade however... One can't blame them for wanting to rectify the consequences of 2 decades of Keynesian folly and big government, but it's too late now, they're caught in a catch 22. Either raise the taxes and face a recession as they did shortly after they raised the sales tax from 5% to 8% in 2014 or delay the tax increases as they are doing now (delaying a hike to 10% to 2019) and face the credit downgrade.

They are cornered.

And the piper will be paid.
 
Hard to generate growth when the population is shrinking, birth rate tanking; about time they open up and accept more young, able body immigrants to help support an aging population.
 
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