Japan has a debt problem that makes the deficit of most countries look like $20 you forgot to repay your friend. It now has the worst debt in the world. As of May 2012, it was 960 trillion yen (somewhere around $12 trillion dollars!). The Finance Ministry says it'll be a cool quadrillion by the end of the fiscal year.
Graph by EMajor
Japan's debt is 200% of its gross domestic product, which essentially means it's twice the size of the country's economy. To put it into perspective, the US national debt is around 80% of its GDP.
Economists say that if a country's debt reaches 90% of its GDP, this means likely economic collapse. But Japan's debt is different. It's mostly owed to the Japanese people in the form of government bonds. The Japanese government owes each of its citizens about 7.5 million yen. Since 95% of its debt is held domestically, its economy is not as precarious as it would be if it were debt to foreign countries.
Or is it? None of the pundits seem to agree. Japan is the world's 3rd largest economy, so its debt is a major concern to people all over the world.
Why the debt is piled so high
There are a number of reasons why the debt is so high. One is a series of government stimulus packages to combat the recession where the Japanese government borrowed money from its people in the form of bonds. The only trouble was that these ideas didn't work and now the money's gone.
For many years, Japan has been one of the world's leading export economies, but exports have taken a nosedive. Exports fell drastically in 2009, pushing the debt to record levels. Once again, the recession is usually blamed. Due to economic troubles, other Asian countries stopped buying Japanese goods. Since 2009, things haven't gotten much better.
A major reason so many people are talking about economic catastrophe is the demographic situation in Japan. A disproportionate number of Japanese are over retirement age and this puts a burden on the country's social security system. The birthrate is low and there's little immigration. Japan is actually losing a million people each year.
Damage from last year's earthquake and tsunami haven't helped the economic situation either.
How to get rid of Japan's massive debt
Recently, Japanese politicians can be seen shouting at each other on national television. My Japanese isn't quite at the level where I can follow political bickering, but I suspect the national debt has something to do with it.
Photo by Voyages Photos Manu
The government's plan is to raise the sales tax. They're talking about doubling it. Opponents say that this measure wouldn't help recovery at all because people would simply buy less. Their proposal is to cut social services, but this would force more economic hardship on families. Another idea is to raise income and corporate taxes.
One measure has been enacted already—to issue more bonds. In the 2012 fiscal year it issued 44.3 trillion yen in new bonds.
I'm clueless about economics and I can't comprehend how much a trillion yen is, but I've got a few ideas. Why don't they sell some islands? How about bringing in foreign workers and somehow making it possible for them to work? Maybe Japan could start caring more about tourism? I don't know. If you've got ideas, please leave them in the comments and let's figure it all out!