2 problems for Japan and a simple solution
Problem 1:
-Japan owes 200% of its GDP in debt, the highest rate in the first world.
-Japan owes most of its debt domestically- in other words, in yen.
-The Bank of Japan controls the supply of yen. It could print its way out of debt. But normally, this is not done, because it leads to inflation as the money supply increases.
Problem 2:
-The Yen is too high. Japan's economy relies heavily on exports. The lower the value of the yen, the more money it makes selling cars overseas. Therefore, Japan has bought dollars in the past when the US dollar falls, to keep its value high against the yen.
-Right now, the end of the carry trade has made the price of the yen shoot up, making those critical exports less profitable.
Solution to both problems:
Print yen and pay domestic debt with it. Japan's economy is at the 0 bound as it is, with everyone saving. So inflation is not a major threat.
But Japan is now in a very rare situation where any resulting inflation would be a blessing. They could pay off debt and lower the value of the yen all at the same time.
But the bureaucrats in charge just sit there like deer in headlights. It's depressing.
3 comments:
Printing yen ( to pay domestic debt with it ) will lead to hyper-inflation in Japan. The right solution should be the reform of bureaucrats system and downsizing of governmental functions. Also those debt could be reduced by selling lots of stats asset to the public.
Correction : stats asset --> national asset
Basically there's no other solution rather than governmental cost cut. (Inflation cannot be expected.)
There's no reason not to cut bureaucratic fat, too. Japan has a lot of it.
But inflation is the lest of the country's worries- Japan has been going through deflation for years now. It is in a bizarre situation where it actually needs inflation. Might as well make use of it.
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