Trend: Japan's debt to GDP is 197%, with a declining population who has stopped saving.
The debt to GDP is 92% in the U.S., 82% in Germany and the UK. The Toyota debacle will not help confidence in Japan.
Vitaliy Katsenelson at www.ContrarianEdge.com points out what we can learn from Japan:
Continuous stimulus predicated on tax cutting and increased government spending, financed by borrowing (which future generations will have to repay) is not a viable solution to deal with economic slowdown. Eventually, increased debt levels and higher interest rates drive government deficit up, which in turn brings a combination of higher taxes, inflation, and a decline in the dollar.
We should let the economy naturally fix itself. It may be painful in the short term, but it’s a necessary, natural process.
Here's how Japan got in deep debt.
Here is the official explanation by the Japan Ministry of Finance of what took place from the early 1990s to 2000; the same story continues till today. It all sounds like this: Economy doesn’t grow: 1) cut taxes 2) increase government spending 3) raise debt
Early 1990s: “Japan experienced a serious economic downturn. … Government initiated various economic measures, including a series of large-scale public work programs …. these measures required further issuance of bonds….”
1994: “A major tax reduction amounting to … 1.3% of GDP was carried out, with the gap financed by the issuance of special deficit-financing bonds.”
1995: “A major tax cut amounting to ¥5.5 trillion was carried out… Furthermore… the Government decided to initiate the largest ever economic stimulus package… As a result … government bond issues … reached … 28.0% of total government expenditures.”
1996: “A major tax cut on the same scale as that in 1994 and 1995 was continuously carried out. … the amount of government bonds issued was … 28.8% of total government expenditures.”
1997: “the Government decided not to continue the temporary tax cut, and instead raised the consumption tax rate from 3% to 5%. … However, due to the severe economic downturn … decided to carry out a temporary tax cut … government bond issues reached ¥18.5 trillion, or 23.5% of total government expenditures.”
1998: “Fiscal Structural Reform Act… given the still stagnant economic situation, the Government announced two more economic packages, one in April … ¥16 trillion, and … in November… of over ¥27 trillion… bonds issued totaled a record high of ¥34.0 trillion, and the ratio of bond issues to total expenditures reached an all-time high of 40.3%.”
1999: “Budget was compiled with priority on promoting economic recovery … the amount of government bonds to be issued was … 6.3% of GDP… 37.9% of total government expenditures… Government took measures to deal with the continuous economic slump…. announced Emergency Employment Measures… in light of weak private demand and a severe employment situation, the Government decided to use contingencies for public works amounting to ¥500 billion…
… Government announced Policy Measures for Economic Rebirth… This package totaled over ¥17 trillion… government bond issues reached a record high 43.4% of total government expenditures … amount of bonds to be issued soared up to ¥38.6 trillion.
2000: “… providing utmost assurance to the Government's economic management in putting the economy back onto the track to a full-scale recovery… budget continued to be stimulative… bond issuances reaching ¥32.6 trillion, or 38.6% of total expenditures … a policy package for New Economic Development towards the Rebirth of Japanwas issued… As a result, government bond issuances for the year increased to be ¥33.0 trillion, or 36.9% of total expenditures… [Source: Japan Ministry of Finance. Emphasis added and text truncated for brevity.]
via Barry Ritholtz