shuize wrote: ↑Sun Jan 23, 2022 10:12 am
It's not like Japan has any debt issues to worry about or anything.
Here's an article in the Wall Street Journal about Japan's debt:
Japan’s Love of Debt Offers a View of U.S. Future
TOKYO—Half or more of Japan’s huge government debt doesn’t really exist. And even if it does, the country needs a lot more of it.
Those are a couple of the arguments being heard in Tokyo as the rich world’s most-indebted government relative to its size prepares for a new round of spending this fall that could reach into the hundreds of billions of dollars.
Japan often serves as a tryout venue for policies that later debut on the world economy’s biggest stage, the U.S. The Japanese central bank was a pioneer in introducing zero interest rates and buying large quantities of government bonds to stimulate a sluggish economy, tools subsequently used by the Federal Reserve.
There's a graph in the article that shows the interest paid on JGBs. It's basically 0%. Kinda begs the question of why invest in a bond that pays 0% interest. Wouldn't it make more sense to just keep your money in cash? Perhaps they feel safer holding bonds because there's a limit to how much money is guaranteed in bank deposits. It's a bit of a mystery to me.
But the article does point out:
For many in Japan’s big-spending camp, two related points undergird the view that the debt isn’t what it seems. First, it is entirely denominated in Japan’s own currency, the yen. Second, about half of it is owned by the central bank, part of the same government issuing the debt in the first place.
The first point is important. Japan is only obligated to pay its debts in yen, and Japan can create unlimited amounts of yen in principle. The second point is that the Central Bank holds half of that debt, and buys more of it every month. They have a policy of buying as much of it as they need to to keep interest rates at zero. Can this go on forever without something breaking? I don't know.
But if you have a credit card with no limit and zero percent interest, and no monthly minimum payment, can't you just keep using it forever and keep right on running up debt to infinity? :notsure:
Someone has to buy the bonds financing this spending, yet the interest rate on the benchmark 10-year bond remains at almost exactly zero. There is always a big buyer waiting in the wings: the Bank of Japan.
Through an asset-purchase stimulus program known as quantitative easing, the BOJ already owns about half of the government’s bonds, a higher proportion than the Fed, which owns about one-fifth of U.S. government debt.
Yoichi Takahashi, a Kaetsu University professor who advised the Suga government until earlier this year, observes that interest paid by the government to its central bank makes a round trip back into government coffers, and expiring bonds are rolled over. “It is 500 trillion yen of borrowed money that in effect carries no interest and never has to be paid back,” he wrote this year.
Any interest the BoJ does receive, it simply returns to government coffers. It seems like it shouldn't work, but somehow it does. Money has value because people believe that is has value. This is true also for bitcoins. What is a bitcoin anyway, and why do some people believe that they are worth $50,000 or whatever they are worth today? It's a mystery to me.