Posted on September 10, 2012
Source: Asia Times
Japan’s massive government debt conceals massive benefits for the Japanese people, with lessons for the US debt “crisis”.
In an April 2012 article in Forbes titled “If Japan Is Broke, How Is
It Bailing Out Europe?”, Eamonn Fingleton pointed out the Japanese
government was by far the largest single non-eurozone contributor to the
latest euro rescue effort.  This, he said, is ”the same government
that has been going round pretending to be bankrupt (or at least
offering no serious rebuttal when benighted American and British
commentators portray Japanese public finances as a trainwreck).”
Noting that it was also Japan that rescued the International Monetary
Fund (IMF) system virtually single-handedly at the height of the global
panic in 2009, Fingleton asked:
How can a nation whose government is supposedly the most overborrowed in the advanced world afford such generosity? …Fingleton acknowledged that the Japanese government’s liabilities are
The betting is that Japan’s true public finances are far stronger
than the Western press has been led to believe. What is undeniable is
that the Japanese Ministry of Finance is one of the most opaque in the
large, but said we also need to look at the asset side of the balance
[T]he Tokyo Finance Ministry is increasingly borrowingIt’s a good deal for the Japanese government: it can borrow 10-year
from the Japanese public not to finance out-of-control government
spending at home but rather abroad. Besides stepping up to the plate to
keep the IMF in business, Tokyo has long been the lender of last resort
to both the US and British governments. Meanwhile it borrows 10-year
money at an interest rate of just 1.0%, the second lowest rate of any
borrower in the world after the government of Switzerland.
money at 1% and lend it to the US at 1.6% (the going rate on US 10-year
bonds), making a tidy spread.
Japan’s debt-to-GDP (gross domestic product) ratio is nearly 230%,
the worst of any major country in the world. Yet Japan remains the
world’s largest creditor country, with net foreign assets of US$3.19
trillion. In 2010, its GDP per capita was more than that of France,
Germany, the UK and Italy.  And while China’s economy is now larger
than Japan’s because of its burgeoning population (1.3 billion versus
128 million), China’s $5,414 GDP per capita is only 12% of Japan’s
How to explain these anomalies? Fully 95% of Japan’s national debt is
held domestically by the Japanese themselves.  Over 20% of the debt
is held by Japan Post Bank, the Bank of Japan, and other government
entities. Japan Post is the largest holder of domestic savings in the
world, and it returns interest to its Japanese customers. Although
theoretically privatized in 2007, it has been a political football, and
100% of its stock is still owned by the government. The Bank of Japan is
55% government-owned and 100% government-controlled.
Of the remaining debt, over 60% is held by Japanese banks, insurance
companies and pension funds. Another chunk is held by individual
Japanese savers. Only 5% is held by foreigners, mostly central banks.
 As noted in a September 2011 article in The New York Times:
The Japanese government is in deep debt, but the rest ofMyths of Japan’s debt-to-GDP ratio
Japan has ample money to spare. The Japanese government’s debt is the
people’s money. They own each other, and they collectively reap the
Japan’s debt-to-GDP ratio looks bad. But as economist Hazel Henderson
notes, this is just a matter of accounting practice – a practice that
she and other experts contend is misleading.  Japan leads globally in
virtually all areas of high-tech manufacturing, including aerospace.
 The debt on the other side of its balance sheet represents the
payoffs from all this productivity to the Japanese people.
According to Gary Shilling, writing for Bloomberg in June 2012, more
than half of Japanese public spending goes for debt service and social
security payments. Debt service is paid as interest to Japanese
“savers”.  Social security and interest on the national debt are not
included in GDP, but these are actually the social safety net and public
dividends of a highly productive economy.
These, more than the military weapons and “financial products” that
compose a major portion of US GDP, are the real fruits of a nation’s
industry. For Japan, they represent the enjoyment by the people of the
enormous output of their high-tech industrial base.
Government deficits are supposed to stimulate theSo says conventional theory, but social security and interest paid to
economy, yet the composition of Japanese public spending isn’t
particularly helpful. Debt service and social-security payments –
generally non-stimulative – are expected to consume 53.5% of total
outlays for 2012.
domestic savers actually do stimulate the economy. They do it by
getting money into the pockets of the people, increasing “demand”.
Consumers with money to spend then fill the shopping malls, increasing
orders for more products, driving up manufacturing and employment.
Myths about quantitative easing
Some of the money for these government expenditures has come directly
from “money printing” by the central bank, also known as “quantitative
easing”. For over a decade, the Bank of Japan has been engaged in this
practice; yet the hyperinflation that deficit hawks said it would
trigger has not occurred. To the contrary, as noted by Wolf Richter in a
May 9, 2012 article:
[T]he Japanese [are] in fact among the few people in theHe cites as evidence the following graph from the Japanese Ministry of Internal Affairs:
world enjoying actual price stability, with interchanging periods of
minor inflation and minor deflation – as opposed to the 27% inflation
per decade that the Fed has conjured up and continues to call,
moronically, “price stability.” 
How is that possible? It all depends on where the money generated by
quantitative easing ends up. In Japan, the money borrowed by the
government has found its way back into the pockets of the Japanese
people in the form of social security and interest on their savings.
Money in consumer bank accounts stimulates demand, stimulating the
production of goods and services, increasing supply; and when supply and
demand rise together, prices remain stable.
Myths about the ‘lost decade’
Japan’s finances have long been shrouded in secrecy, perhaps because
when the country was more open about printing money and using it to
support its industries it got embroiled in World War II.  In his
2008 book In the Jaws of the Dragon, Fingleton suggests that
Japan feigned insolvency in the “lost decade” of the 1990s to avoid
drawing the ire of protectionist Americans for its booming export trade
in automobiles and other products.
Belying the weak reported statistics, Japanese exports increased by
73% during that decade, foreign assets increased, and electricity use
increased by 30%, a tell-tale indicator of a flourishing industrial
sector. By 2006, Japan’s exports were three times what they were in
The Japanese government has maintained the facade of complying with
international banking regulations by “borrowing” money rather than
“printing” it outright. But borrowing money issued by the government’s
own central bank is the functional equivalent of the government printing
it, particularly when the debt is just carried on the books and never
Implications for the ‘fiscal cliff”
All of this has implications for Americans concerned with an
out-of-control national debt. Properly managed and directed, it seems,
the debt need be nothing to fear. Like Japan, and unlike Greece and
other eurozone countries, the US is the sovereign issuer of its own
If it wished, congress could fund its budget without resorting to
foreign creditors or private banks. It could do this either by issuing
the money directly or by borrowing from its own central bank,
effectively interest-free, since the Federal Reserve rebates its profits
to the government after deducting its costs.
A little quantitative easing can be a good thing, if the money winds
up with the government and the people rather than simply in the reserve
accounts of banks. The national debt can also be a good thing. As
Federal Reserve Board chairman Marriner Eccles testified in hearings
before the House Committee on Banking and Currency in 1941, government
credit (or debt) “is what our money system is. If there were no debts in
our money system, there wouldn’t be any money.” 
Properly directed, the national debt becomes the spending money of
the people. It stimulates demand, stimulating productivity. To keep the
system stable and sustainable, the money just needs to come from the
nation’s own government and its own people, and needs to return to the
government and people.
1. If Japan Is Broke, How Is It Bailing Out Europe?, Forbes, April 23, 2012.
2. Japan’s Debt Sustains a Deflationary Depression, Bloomberg, June 5, 2012.
3. In Japan, a Tenuous Vow to Cut, New York Times, September 1, 2011.
4. The domino that never falls, The Economist, July 21, 2011.
5. In Japan, a Tenuous Vow to Cut , New York Times, September 1, 2012.
6. JAPAN AT THE CROSSROADS, August 2011.
7. Fingleton’s 1995 rebuttal of the “basket case Japan” story, Sandcastle Empire.
8. Japan’s Debt Sustains a Deflationary Depression, Bloomberg, June 5, 2012.
9. The Japanese Are Dumping Their Gold, May 9, 2012.
10. Japan in WWII: A Casualty of Usury?, Veterans Today, June 26, 2011.
11. See The Right To Issue Credit Money.
Ellen Brown is an attorney and president of the Public Banking Institute, PublicBankingInstitute.org. In Web of Debt, her
latest of 12 books, she shows how a private cartel has usurped the
power to create money from the people themselves, and how we the people
can get it back. Her websites are webofdebt.com andellenbrown.com.
(Copyright 2012 Ellen Brown)
Thanks to: http://jhaines6.wordpress.com