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Japanese Finance Minister Says, “Japan is Fiscally Worse Than Greece.”
The Japanese Finance Minster, Yasushi Kinoshita, stated that, “”Japan is fiscally worse than Greece.” This statement is huge. At a conference in Japan, the Finance Minister also noted that in 2011 Japan ran a 10% deficit and their debt to GDP ratio skyrocketed to over 230%. When we look back at economic history when a country breaks through the 160% debt to GDP number they usually have either economic collapse or a currency crisis. Only Great Britain during its imperial might in the 1700 and 1800’s were able to come out of a debt load this large. What makes all this particularly interesting is that most of Japan’s debt is held domestically. Because of this the Japanese financial system will be much more susceptible to fiscal shock.
An additional piece of news makes the statement by the Japanese Finance Minister even more serious. This year alone Japan will have to pay back in full nearly $3 Trillion, nearly 25% of all the debt they owe. Financial stability will be completely dependent on the old bondholders being willing to simply reinvest their money in the new bonds. If bondholders don’t reinvest Japan will have to look for new investors. This year of all years it will be particularly hard to get new bondholders because so many countries have debt coming due like Japan. There are far more options than investors at this point. Therefore, Japan could be looking at an escalation of a fiscal crisis.
