Japan's Final Resolution Has Yet To Come

Tyler Durden's picture

From Kyle Bass / Dylan Grice prognostications on Japan as poster-boy for the end-results of a desperate central bank / government cabal to Richard Koo's perception of the land of the rising sun as a great example of how to get out of a depressionary funk, no one can argue with the facts that Japan's debt situation and total lack of financial flexibility is a ticking debt-bomb (with a fuse varying from 3 months to infinity given market participants' pricing implications). McKinsey provides some clarifying perspective on the Lessons from Japan today suggesting the country provides a 'cautionary tale for economies today'. Noting that neither the public nor the private sectors made the structural changed that would enable growth (a theme often discussed here) with public debt having grown steadily as economic stimulus efforts continue. But, as they note, the price - two decades of slow growth - has been high, and the final resolution of Japan's enormous public debt has yet to come.



McKinsey - Lessons from Japan

Japan provides a cautionary tale for economies today. In the 1980s, a lending boom fueled a dual asset bubble in real estate and equities.

Household and corporate debt surged; total debt increased from 243 percent of GDP to 387 percent in a decade. The bubbles collapsed in 1989 and sparked a deep recession, but debt has continued to rise, reaching 512 percent of GDP in mid-2011 (Exhibit 16). Even so, Japan has had very little growth—an outcome that no country wishes to replicate.

Japan’s crisis response stands in sharp contrast to those of Sweden and Finland. Private-sector debt reduction did not begin until nearly eight years after Japan’s crash. The very large debt of non-financial businesses meant that companies could not afford to invest in growth, slowing the economic recovery and preventing a stock market rebound. Their impaired loans clogged bank balance sheets, curbing lending and raising uncertainty about the health of the banking system. Neither the public nor the private sectors made the structural changes that would enable growth.

Meanwhile, partly as a result of public investments aimed at stimulating the economy, Japan’s public debt has grown steadily. At 226 percent of GDP, it is nearly double the level of some eurozone-crisis economies. Yet Japan has avoided a sovereign debt crisis, largely because more than 90 percent of the debt is owned by Japanese investors: Japanese banks hold nearly $5 trillion in government bonds, and insurers and pension funds hold $4.5 trillion. But the price—two decades of slow growth—has been high, and the final resolution of Japan’s enormous public debt has yet to come.

Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.
GeneMarchbanks's picture

If you're referring to their Treasury holdings then yeah, absolutely.

Calmyourself's picture

Just another ten years or so, you better watch out Japan.  The U.S. better watch out too only 25 more years to go in the ponzi, Ooo scarey..

LongSoupLine's picture

How much you want to bet your comments were just as contextually idiotic in 2006-07 when talk/warnings of a housing bubble were discussed?  

Calmyourself's picture

How much do you want to bet there existed a rule of law way back then.   In case you have not noticed Cozine just stole over a billion dollars..  You tell me, is he is in Rikers or the Federal pen?  This isn't 2008 and the fact that you have not adjusted to the new paradigm says more about you than my bets on 2008 tell about me.  Try the red pill..

Jeronimo's picture

Only Marky Mak can save.

Vampyroteuthis infernalis's picture

Stagnation! You can't generate enough debt when a bubble pops. The US does not have the amount of time that Japan did when rest of the world was growing.

dmger14's picture

Tru dat!  Japan also was able to get by for so long because it had trade surpluses.  The US does not.  I can envision, however, the gubment forcing retirement accounts into treasuries as foreigners walk away from our debt, in order to try and keep the game going as long as possible.

bushwarcrime's picture

Yes this info has been rehashed many times here on ZH.  Japan is trapped in a mire of debt, true.  The outcome of which is yet to be seen sure.  But bet your last yen that in the end it will go down smooth, like a nice semi-dry sake, a hint of harsh on a wave of smooth.  Then they'll grab their bootstraps and see you in 20 years, smaller, more humble yet strong. 

LawsofPhysics's picture

Same as it ever was.  With limted energy sources on the island, debt is the only way the bullshit eCONomic system can grow.

"Japan’s crisis response stands in sharp contrast to those of Sweden and Finland. "

- no shit, the vast majority of the Japanese know how to "serve masters".

 Give us some information we can trade on or get the fuck off this site.

new game's picture

200 percent debt/gdp = 30 T


be there soooon, say by 2020

8 more years of reading about this bull shit.

time for a change.....

exi1ed0ne's picture

18 years? Try 4.

Exponential functions FTW!

Madcow's picture

an orderly - long term deflation - can only happen in the context of an otherwise healthy and growing economy that is capable of generating new money to feed the deflation.

now, that's coming to an end. with no net new cash to feed all the bonds and rents, the debts must collapse.

mark it zero.  end the war against math.

Mercury's picture

It will be worse in the US because ultimately Japan's much more homogenous and authority respecting populace will buckle down/sacrifice/get in line to ride out the debt bomb crisis as needed. 

Japan has been around a long time, culture matters and theirs is still firmly intact. Eventually all those old people will die (and the demographic situation won't be a negative factor), the younger generations will reverse engineer whatever the next big thing is and press on.

homer8043's picture

Completely disagree. Japan's situation is terminal. Decreasing population and xenophobia are going to leave it in terminal decline. Just a matter of time until it starts. Maybe it levels out in 25-40 years at a much lower level than today but there is no solution for Japan.

The US suffers from a complete lack of leadership and utter denial. The US has the ability to recover if it takes a big dose of medicine and starts facing reality. It's not likely immediately but the complaints are starting to surface.


Mercury's picture

Well, things could certainly suck for a while and if things pan out along the lines I've described they will come out the other end with a much smaller population (not necessarily a bad thing) but that doesn't have to ruin them and may very well leave them with certain advantages over other countries that had similar problems but took different actions.

At least some xenophobia isn't necessarily bad either.  Opening your borders to low attainment immigrants in the hope that they will generate enough tax revenue to get you over the demographic hump (while only contributing positive multicultural influences) may not prove to be a winning strategy either.

Sandmann's picture

The Japanese used China to circumvent the threat of US Tariffs but hollowed themselves out. The US used China for cheap labour and lax environmental rules to hide the destruction of US real incomes by letting Corporations increase their share of GDP at the expense of Labour and shifting the US economy towards Credit Creation and Credit Retail of wholesale funds.

Sandmann's picture



Nice book to read. It seems that all economies will converge on The Putin Model, probably an  economic elite wedded to the Intelligence Services/Secret Police exploiting the situation for their own perpetual oligarchy and eliminating or eradicating any threats to their status as Guardians in Plato's Republic.

We all know of instances where opposition has been forcibly dispensed with - even in current times

GeneMarchbanks's picture

Nothing new regarding the intelligence/oligarchy complex since this has been a model you can easily trace to the industrial revolution maybe even farther. The only difference is that the awareness is now becoming almost widespread among the population. Of course, awareness itself is not enough for people to actually do anything and it turns out has an even more demoralizing effect.

disabledvet's picture

The USA is nothing but a series of debt fueled property binges followed by total economic collapse. Of course gold is a safe store of value...it's price never truly collapses and without massive...chicanery...has a hard time even falling. There are factors having to do with the deployment of the information age (and no we are not smarter...we have merely discovered new means of immorality and lawlessness) which still provides dollar based assets an advantage over even gold itself. Can the debt Supercycle actually end? It's time for those who coined that term to fess up: how is this being sustained?

yogibear's picture

The US keeps being fiscally irresponsible. Once the US looses it's reserve currency status the fun begins. With daily calls by Wall Street of more and more QEing  (Wall Street candy)  countries eventually won't want the US dollar and the Federal Reserve's goose is cooked. So is the the US. 

The US has become the UK of the past.  A once inventive country has turned into one big Ponzi scheme supported by the bought and paid for Congress and Senate.


LawsofPhysics's picture

"bought and paid for Congress and Senate."

Let me fix that for you- bought and paid for by the central reserve banks (and the secret board members and families on those governing boards), their primary dealers, and their puppets in the Congress and Senate.

mjk0259's picture

And yet, the Japanese still have a high standard of living. Except for smaller houses, probably higher than the US. And less stressful with medical care and no multicultural issues. Compare a Jap airport to the one you leave in the US. Compare a Jap train to the NYC subway.


chinaboy's picture

They don't escape the final act of a ponzi -- when it must end.

Benign's picture

Right, if they could handle the slowdown, they will be able to handle the end of the Ponzi.  They hang together, unlike Americans, who screw each other at every opportunity in the name of the false god of Econ.  See Wilkinson's talk on inequality at ted.org.  On a vast array of social indicators, the US resembles the Soviet Union prior to its collapse.

mikemcsaudi's picture

Here is my burning question ...

Japan's debt to GDP is 500+%.   And they have not imploded/died off/been zombiefied/ etc...    The US debt to GDP is about 105%.  

Sure, this is all bad, but the end STILL has not come to Japan.  In light of Japan, the US would seem to have A LOT MORE debt that they could take on without all of the doom and gloom that I have read over the past three years. 

I am sure ONE DAY that a day of recogning will come.  But that could be 10-20 years from now for the United States!

Is anyone else thinging the same thing?  Where is this analysis wrong? 


YHC-FTSE's picture

That's a fair question and one that has been hashed out many times on ZH. Your guess is as good as mine - the bomb could drop tomorrow or go hobbling along to infinity. The thing I noticed about these things is that as soon as it becomes the new "normal" to casually bandy about debts and bailouts in trillions of dollars, implosion timelines in decades instead of months, and sustaining a broken and systematically corrupted economy as if nothing is unusual, that is precisely the moment something unusual or unpredicted happens. 

Yes, the US could take on much more debt, but that would consequently drop it out of the reserve currency status (As it is already beginning to do), and start a cascade run away from the greenback/commodities coupling. It isn't just the dollar, all fiat currencies rely on trust, and that has been strained to the limit already. Personally, I wouldn't touch a dollar with a bargepole, but there are billions of people worldwide who do not hold the same views (yet), and they are the ones the Fed needs to convince to keep their trust and wealth in the USD either by rewards or threats. It might be a weird concept, but people are beginning to learn that the wealth of America is dependent on the trust and goodwill of foreigners as well as its own populace, and they are both wearing very thin. - If you look to Japan, you will find that most people still trust them to honour their obligations. 

Spigot's picture

Exactly. As Taleb opines, attempts by TPTB to reduce chaos, actually increase both the chaos and the bad results.

QuietCorday's picture

The Japanese situation was somewhat different though. They have managed so far because Japanese households had a lot of personal savings when everything went 'fluup'. Apparently, as far as I have read, Japan is now nearing the end game because those savings have just, in the last few years, finally all gone. 

The issue with the US is that it suffers red in government, corporate AND household debt, so the US cannot turn to the populace and expect it to buy their debt because the populace has little to no savings to do so.    

mikemcsaudi's picture

Here is my burning question ...

Japan's debt to GDP is 500+%.   And they have not imploded/died off/been zombiefied/ etc...    The US debt to GDP is about 105%.  

Sure, this is all bad, but the end STILL has not come to Japan.  In light of Japan, the US would seem to have A LOT MORE debt that they could take on without all of the doom and gloom that I have read over the past three years. 

I am sure ONE DAY that a day of recogning will come.  But that could be 10-20 years from now for the United States!

Is anyone else thinging the same thing?  Where is this analysis wrong? 


Spigot's picture

That is a good question and I'm sure one that can not be answered except in hind sight. So far hind sight says it has functioned well enough. Will that be true for other nations? Not sure. We shall see. Betting on the falability of men has been a sure bet, alebit the time frame for the bitch slap may vary.

Mr Pink's picture

So we are going to have 20 more years of this crap?

SDRII's picture

the japan will implode thesis continues to miss the boat for the apparent reason that it seemingly takes little account of the Yen's central role (and Japan encircling location) in the ongoing US DXY regime/Asiapac strategy. The question isn't' so much when the social and demo trends overtake the yen rather if and when Japan defects into Asia. Take a q from the bilateral Yuan fx, the rearmament campaign, the Ozawa scandal timing in front of elections, and the Okinawa back and forth on the direction they are moving. Then consider the US arm twisting on the lifting of Ag market barriers. All the financial arguments are right but as Z/H points out daily so are the bankruptcy arguments about the US. Historical animosity a clear issue - and those SCS issues will flair every time there is an apparent public "drift"  - but ion the end Japan still has a theoretical put option

Nex's picture

Japan public debt is huge but external not. Japan trade surplus create enough money for domestic consumption of bonds.

US is different case.

US create bubble in Japan-Plaza Accord.

Bow Tie's picture

yup and japanese people, bless 'em, seem happy enough to put their considerable savings into said bonds, hence the everlasting stagflation. but they can't keep it going forever and they certainly can't suffer a major nuclear meltdown and keep it going for the forseeable future. factor in the demographic issues and its game over for real. gov have even thrown a few grains of gold to back these instruments, try to make people feel better about propping up a worthless paper ponzi.

US doesn't have anywhere near the level of savings. factor in future liabilities and its a huge BUST on the horizon. UK tied to the hip as the paper shuffling centre of the universe, BUST for us too.

Texas Ginslinger's picture

By Krugman's logic, Japan's debt is money they owe themselves, so there's no real problem;


slewie the pi-rat's picture

one can hear the clock ticking away the time for japan...

oh, wait!  that's a geiger counter!

dugorama's picture

I keep reading about how horrible Japan's decades of stagnant economic growth have been.  Now I'm just back from Japan and I have to say - we should live so badly.  What I saw was all new infrastructure everywhere, a non-existant street people problem, maybe even no poverty at all, incredible affluence everywhere, in short a humming economy.  If that's where we're heading, it will be an improvement!

Big Ben's picture

Things were great in the US in the roaring 20's. But they were followed by the 30's.

The affluence of the '20's was paid for with borrowed money. In the 30's, the debts came due.