Kan warns of Greece-like debt crisis

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  • 0

    sugamosumo

    nice to start off with such positive comments for the future and the people of Japan...jeez.

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    ronaldk

    The idea that Japan is different b/c it's debt is held domestically does not convince me. At some point the savers who finance this debt via postal savings are going to want their money.

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    Disillusioned

    Good on you Kan! Nice to see Japan finally has a realist for a leader. Hopefully, he will hit the fat-cat money hoarders from the bubble instead of the poverty stricken masses to rebuild the failed economy. - It confuses me as to how Japan got into so much debt. They have spent bugger-all on infrastructure (schools, hospitals, etc)over the last 50 odd years, the highways and rail are all privatized and the national health system is a rip-off. What the hell have they done with their money?

  • 0

    goddog

    Don't raise income taxes. There are lots of others that can be raised.

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    Davin

    First thing he needs to do is convince all the Japanese housewives that they do not need the 13,000 yen a month child allowance, as it only adds to the debt. Single mothers and the unemployed, yes, but other families who only hoard the cash, no! I have 5 Kids and have always been against any type of government handout, most of the time it is just a type of bribery when the elections are near. Austerity is the word that seems to have been lost over the years!

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    timorborder

    I wonder how many heart attacks this caused on the opposition benches, you know those members of the LDP who have been pork-barreling Japan to the poor house for the last 40 years. Hearing the new Prime Minister say such things would almost make it worth watching parliamentary proceedings on the national mouthpiece (NHK).

    Anyway, I agree with the comments of my esteemed colleague disillusioned. The lack of accountability regarding government spending in this country goes well beyond criminal. Moreover, with fewer children being born the future, the tax base of this country is very bleak indeed. Let's hope that the new Prime Minister is going to pay more than just lip service to these very important issues.

  • 0

    TSRnow

    goddog, like what may I ask?

  • 0

    maryhinge

    He is trying to weaken the yen so exports pick up. The Govt have all the debt unlike Europe so no problem really.

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    ronaldk

    I worked in California prior to Japan and can say for a fact taxes are quite a bit lower in Japan. My advice would be to rationalize the pension system first of all and make it obligatory to pay for those who have some form of income. Then, the sales tax should be raised by 1 percent/year over 3 years then stop, with concomitant cuts by the government each year of 2-5% in discretionary spending. But what the hell do I know.

  • 0

    Tatanka

    Things started downhill for Greece 2,000 years ago.

    I can give the posters and idea of how Japan got in such a mess. I was told that for every civil servant you see, there are two hiding. That's why when JR went private decades ago, they laid off 65,000 workers (25% of their workforce at the time) and everything still operated normally...

  • 0

    jason6

    This may sound like fresh political rhetoric until you realize that it's straight out of the play book. It's standard practice to predict doom and gloom for the future at the start of one's tenure, whether it's true or not. If it does come to pass that the economy tanks or continues to tank, it seems like you did your homework and were right all along: a realist. If the economy improves, the politician can claim a significant victory and trumpet it in his re-election speech.

    Wake me up when he actually does something about pork-barreling and inefficiencies, cuz this is all just the same.

  • 0

    Zenny11

    ronaldk.

    I japan you need to pay taxes(pension fund) for 35yrs before you can receive a pension(getting smaller every year).

    Which screws a lot of us expats who made our home here but got here in our 30's and 40's.

    I agree that a nominal sales-tax increase to lets say 7% is needed, but than sales-tax is still a fairly new thing in Japan.

    They should hit tobacco more, Liquor too and other luxury items like Ipads, Gucci bags, etc. :P

  • 0

    islandview

    Kan is already setting the stage for a hike in the consumption tax.
    This "debt crisis" talk is a tactic to try and SCARE the Japanese people into accepting a tax hike . . . or in Japanese political language: "to gain the public's understanding for the tax hike".

    With all the media attention the past months on those "cost cutting" efforts in the budget, the amounts added up to very very little savings.

    There is really no change in the ongoing decline towards a inevitable consumption tax hike.

    1) the gov't spends more everyday 2) income and business tax revenues declined significantly during the financial crisis 3) the Japanese economy is still very weak and will be for a long time 4) somehow they need to pay for all the elderly that need health care, pensions, etc.

  • 0

    thepro

    I don't want to be paying more taxes to pay for other people's baby bonuses

  • 0

    Brunobear

    Japan will not have a debt crisis like Greece. The two economies are like cheese and chalk - Greece virtually doesn't have an economy - it has been sponging off Europe.

    Japan has funded its massive public debt by borrowing from within Japan from personal savings where interest rates are controlled, whereas Greece borrowed offshore with no control over rates payable. I know Japan has spent massively on public infrastructure, roads, bridges, schools etc., but that does not explain a public debt of 218% (US$9 trillion) of GDP (US$4 trillion)?

    Just as China has been committing "Mercantilism" against the US and other Western economies, by reducing its exchange rate to 14% of what it was 25 years ago, to wipe out US manufacturing, Japan seems to have been guilty of the same thing by using public debt to finance the sale of manufactured exports way below actual cost, since the early 1980's. China refuses to let its exchange rate float and Japan will keep subsidizing it's "giant manufacturers", loss making exports and the public debt will worsen. You are both slowly killing the goose that lays you, the golden egg - the US economy.

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    Klein2

    Buwahaaha. "Realist" yeah. Who could ever ever compare Greece and Japan? What is nearly equivalent? I understand he wants to motivate people, but look at how world-beating the yen is. It is so strong it hurts... a lot!

    If the real movers and shakers thought there was a problem, we would know it. So why is Kan some kind of authority?

    I hope he stirs up enough panic that the yen could be devalued, but you and I know it will NEVER happen. And the more he panics people, the less likely people are to take money out of savings, RonaldK. Greece is being skewered because they are an EU country. Japan is free to get itself out of any old bind as it sees fit. If Japan needs to get liquid, it sells T-bonds. No muss, no fuss. The contortions people go through to build up a nightmare scenario are hilarious. In the last six months I have heard "Militarism is rising in Japan" and "Japan has no hope --Dan Gross, Newsweek". The simple fact is that Japan faces no crisis at all, short of ...what... global war? Planetoid impact? It has been preparing for everything else for decades.

    No. No dice. Japan is in its unfortunate position of near-zero inflation, near-zero interest rates, high savings, and comparatively low taxes, and comparatively low unemployment, AND comparatively low public sector employment, with social stability. It will just have to suffer through. Boo hoo.

    What is Kan really doing? Trying to lower expectations, I guess.

  • 0

    maryhinge

    The Japanese Post Office is the key.

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    Davin

    I remember when it was 0% consumption tax and when they raised it to 3% everyone complained, then they raised it to 5%, then the cola machines went up 10 yen and I thought everyone I worked with was going to have a stroke. I explained to them that they had been spoiled to long, and that even now, they have one of the lowest consumption taxes and should be prepared for another raise in the tax.

  • 0

    Zenny11

    Myself don't remember the 0% phase but recall when it went from 3% to 5%.

    Lots of whining back than.

  • 0

    Zenny11

    Said that maybe Japan should adopt a system similar to my home-country.

    0% for lifes essentials meat, milk, eggs, flower, etc.

    10% for other food-stuff.

    20% for even less esential food-stuff

    33% for anything luxury(ie not needed to survive).

  • 0

    Davin

    @Zenny11

    I could live with that, but I guess the Japanese would push to have Gucci bags labeled as a life essential!

  • 0

    martinli92

    USjapan alliance...international community’s ‘‘common property.’‘

    Does Mr Kan has some spine or dignity of his country? The US garrison in Japan causing huge spending to Japanese budget.Like vampire at home and he should cut the alliance and expel US troops out of the country to save spending! $5billion plus spending each yearfor humilations,crimes.... This is the so called 'security'? Was that a myth or illustions? Japan shall never being respected with she refused to take this step!Do not mentioning anymore 'asian community' that wasnt live with the fact!

  • 0

    Zenny11

    @Davin.

    Too true Gucci and LV bags. ;)

  • 0

    martinli92

    major newspaper polls giving Kan approval ratings of between 60 and 70%—good news for his party

    yes, this is a good news, the good news is everyone no more has to think about the US troops in japan was a problem! It was settled and forgotton!

  • 0

    martinli92

    Japan has the largest public debt among industrialized nations at 218.6% of its gross domestic product in 2009

    This is the so-called 'post war recovery miracle'! Wonderful, the debts you owed you shall never have to pay, thats your grand grand children's business! Thanks to the LDP's 50plus years leadership lead the countrymen under slavery of debts! For so much(debts) and so many (people) owed to so few (LDP)!

  • 0

    tmarie

    Wow! A Japanese PM who gets it! Go Kan! Raise the taxes to a decent level, scrap the payouts for those with kids over a certain income level (single parents need the support I think), get rid of allowing wives with no kids to get tax breaks... I have hope for Japan once again.

  • 0

    Scrote

    The postal savings are running out, hence Kamei's move to increase the limit on postal savings from 10 million to 20 million. It won't work though: years of pay cuts, an ageing society and declining workforce mean that the pool of cash will soon be gone. And who do you sell your bonds to then? The dreaded "foreigners"? They won't put up with a measly 1.5% interest rate, but anything higher will soon bankrupt the country.

    I expect the government will default, it wouldn't be the first time, and it that sense Japan is very much like Greece. Visit the Bank of Japan museum to see the history of Japanese governments spending beyond their means, followed by default, repeated over and over again. Just like Greece. Make sure you don't own too many Yen when the "New Yen" is introduced, as history tells us you will be screwed.

  • 0

    smithinjapan

    This is going to go 100% against the little people, and protect the fat cats. I know Kan comes from a different background that his predecessor, but I guarantee the 'wasteful' spending that they cut will not be Amakudari or construction contracts, but instead to social services.

    They've already jacked up residence taxes everywhere this year, and soon it will be consumption tax, all the while the DPJ promised a corporate tax CUT! Raise taxes 300% on tobacco, and raise alcohol taxes (quite low compared to other nations) to start. Raise the consumption tax to 7 or 8% ONLY. Raise the taxes for the ultra-rich, and keep them where they are for corporations. Cut the 'family bonus' 13,000 yen so long as it is guaranteed to be put into education for other purposes (ie. school lunches, infrastructure).

    Anyway, I doubt things would be 'Greece-like' unless everyone panicked over this news and suddenly tried to take out all their savings.

  • 0

    ronaldk

    The "Japan is different" argument really is not convincing. Once the retirees start needing their money, they will withdraw it wanting cash. The process may not be acute, rather chronic. Making it harder for the government to borrow.

  • 0

    Conway

    It's true that Japanese institutions own most of the debt created by the budget deficit but isn't it still a massive problem as even with the low interest rates here it still costs the Government 40% of annual tax revenue simply to pay the interest on the debt! What would happen if interest rates were to rise? Income tax dodgers cannot avoid paying consumption tax so how about lowering income tax mainly paid by employees and raise consumption tax paid by everyone. To help the poor, food, children's clothes, medicine and heating oil could be zero rated. This way it would be the income tax dodgers who would be hit the most :)

  • 0

    maryhinge

    Tobacco 1000 yen a packet will work.

  • 0

    davidattokyo

    That's true ronaldk, they will want their money, but it seems that Japan's domestic savings pool will only be able to absorb the additional debt issued for another 3 or 4 years anyway, so perhaps things will go splat because of that first IMHO.

  • 0

    Nonews

    martinli92 at 04:22 PM JST - 11th June

    USjapan alliance...international community’s ‘‘common property.’‘

    Does Mr Kan has some spine or dignity of his country? The US garrison in Japan causing huge spending to Japanese budget.Like vampire at home and he should cut the alliance and expel US troops out of the country to save spending! $5billion plus spending each yearfor humilations,crimes.... This is the so called 'security'? Was that a myth or illustions? Japan shall never being respected with she refused to take this step!Do not mentioning anymore 'asian community' that wasnt live with the fact!

    You should consider the fact that Japan does not pay for the military equipment nor the personel. They only pay for the land and the cost of operation of the land. If they had to actually pay for a full military they would be spending a hell of a lot more then what they do now. Also the US serviceman spend billions of dollars a year in the comunities they have bases in. It might sound like a great thing to remove the bases (and I think the US should leave) but in the end the removal of the US bases here in Japan would cause way more financial problems then it would cure for then next 1-5 years. If the economy was better then they might be able to have them leave without causing a major financial crisis.

  • 0

    888naff

    "You should consider the fact that Japan does not pay for the military equipment nor the personel. They only pay for the land and the cost of operation of the land. If they had to actually pay for a full military they would be spending a hell of a lot more then what they do now"

    ..not true is that?

    ... I think you might be judging by usa standards, which the usa spends a massive massive amount(doesn't it) on military compared to other developed countries. Japan doesn't need to be the same as the USA military wise and that would certainly make sense as the two countries in the last 50 years think quite differently in how to go about world affairs.

    Possibly better that Japan was maybe more like a mix of some over developed countries military wise with still a focus on diplomacy how it chooses.

  • 0

    Nonews

    Not judging it by any country standard, other then Japans. Japan has to have a Naval and airforce with enough equipment and men to support its own defence. It does not have that now, and to get it to that level would cost a lot more then the cost to operate the current US bases. Look at the military budget now for Japan. Take that and triple the expense for the military and you might be close to what it needs to self operate. Any business man can tell you its cheaper to contract a job out then it is to operate and maintain the job and the staff as your own.

    here is a link to the JDoD and how it spends its budget now...

    http://www.mod.go.jp/e/data/pdf/071225.pdf

  • 0

    Klein2

    "Any business man can tell you its cheaper to contract a job out then it is to operate and maintain the job and the staff as your own. "

    Yeah. That is why successful companies making great products don't have any employees, just one guy pushing buttons and eating donuts.

    Of all the comments, I suppose it is that of MARTINLI that really strikes me. Oh no! 218%! Actually, I had heard it was 190% of annual GNP. A disaster! An intergenerational debacle!. Look. Ever bought a house? If you buy one that is let's say 5 times your annual income, do you panic? No. Do you assume your kids are going to pay for it? No. You finance it. Japan is financing its huge debt at something like 1%. Now when you borrow at 20%, as America has actually done before, you are doubling your debt every 4 years or so. At 10%, you are doubling about every 8 years. Fight a war here and there and it really adds up.

    At 1%, how long for Japan's debt to double if it is not serviced. Do you know? Want to guess?

    Yet another reason that Japan is in GREAT shape. It has done all its borrowing at really really low rates, and it has borrowed from itself. Inflation? Well then you pay back with cheaper yen. Deflation? Great, lower interest rates, so borrow more. High yen? Well not great, but Japan will manage. Low yen? Sell some cars and Wiis and pay back the debt with cheap yen.

    Want another kick in the head? The US debt figure does not include municipal bonds or unfunded obligations. Guess what. Japan does not have any (I think zero, but actually Tokyo might have some munis.). The J debt is national debt. That is all. So you have the entire government debt funded at very low interest rates. No surprises, no Californias or Detroits.

    Kan is a boob. Japan is going to be just fine. Americans and the rest of the world want to pretend that a huge trade surplus does not mean anything. Well. Ahem. It does. It means quite a bit, especially if you keep it going for half a century.

  • 0

    Laguna

    The many benefits of an aging society are, I think, too often overlooked. First, older people tend to die, and with beneficiaries rather than dependents. In addition to the "kids" getting a windfall, inheritance tax receipts are sure to rise. A shrinking society also means less expenses for infrastructure. The elderly tend to live in small houses in city centers, and freeing up this land will do wonders for urban development: the population may be shrinking, but not in the cities. More flexible annuity-type schemes could help more elderly fund their own last years rather than relying on public spending.

    Prefectural governments should be replaced with the Doshusei 道州制 system of a dozen or so regions. This has already begun with the "Great Heisei Mergers" 平成の大合併, making redundant large numbers of municipal employees. The same done on a national basis would produce great savings.

    Room well exists both to increase revenue and cut spending. The question is, does the will?

  • 0

    Beelzebub

    Prefectural governments should be replaced with the Doshusei 道州制 system of a dozen or so regions.

    I agree. Half a dozen would be plenty in a country Japan's size. Shikoku and Kyushu would both become single prefectures. The USA would benefit from a similar move -- 10 states maximum.

  • 0

    Nonews

    "Any business man can tell you its cheaper to contract a job out then it is to operate and maintain the job and the staff as your own. "

    Yeah. That is why successful companies making great products don't have any employees, just one guy pushing buttons and eating donuts.

    **How do you take contract "workers" and change it to no employees... Seems your looking for something that wasnt said. Almost all top money making companies in the world use contract workers because of the cost savings over having actual company employees. Just a short list of some of those successful companies.. Toyota, Dupont, PPG, Samsung, HP, Lexmark, Sony, and many many many more... Having employess includes alot more then just the employee salary as a cost, and that is why a contract worker is cheaper then an actual company employee. but please dont take my word for it, do a bit of research and find out for yourself... **

  • 0

    Scrote

    Klein2: Deflation is bad news for the government as it means they have to repay existing debts from a shrinking pool of income. It means that in real terms, even a nominal 1% interest rate is quite high.

    The Japanese government has debts of around 200% of GDP and annual tax revenues of about 30% of GDP. There aren't too many banks that would lend you nearly seven times your annual income, particularly when you continue to add to the debt year after year. With no credible plan to repay the debt, once the postal savings money runs out interest rates will go through the roof and it will be game over.

    Also, local governments in Japan certainly do have debts and most issue municipal bonds. Ever heard of Yubari, a bankrupt local authority? Take a look at the local government budgets that they send round in their newsletters. For Sendai about 10% of the budget goes on loan repayments, not too bad, but other places are much worse.

    It's certainly fascinating to watch the government carry on year after year, seemingly oblivious of the fate that awaits them. They will try to raise taxes soon, but maybe it's too late. The people with the money are the elderly and they don't pay taxes.

  • 0

    TokyoVP

    Japan's Dichotomy:

    World's leading creditor nation for 17 consecutive years, i.e., Japan owns more assets overseas than any nation...yet Japan has the largest national debt of any OECD nation.

    Layman's explanation:

    Somebody is very rich, and many are going to be very poor in Japan.

  • 0

    proxy

    No! Before Kan raises taxes he needs to slash government spending across the board. The idiotic construction projects around here do nothing but create traffic jams, cut into my productivity and make me burn more fuel.

  • 0

    nigelboy

    With no credible plan to repay the debt, once the postal savings money runs out interest rates will go through the roof and it will be game over

    Actually, the deposits held by Japanese banks far exceeds the loans disbursed. I believe the figure is about 140 trillion yen. This excess is the reason why these insitutions have bought government debt. In other words, instead of emphasizing "government owes too much to the public", the root of the problem is "public owns too much the government debt" which essentially means "public didn't spend" or "public saved too much".

    Having said that, will limiting the government debt spur the public to spend more? Will the banks lend more? Let's not forget that it was Koizumi who pledged "30 trillion yen debt cap" during his initial appointment as a prime minister. And sadly, this is when the gap between the deposits versus the loans disbursed started to increase.

  • 0

    sf2k

    his cabinet has three major goals—a full-scale cleanup of the postwar government, comprehensive reconstruction of the economy, finances and social welfare, and formulation of responsible diplomatic and security policies.

    isn't that four things?

  • 0

    Sarge

    Someone should warn the United States of a Greece-like debt crisis.

  • 0

    sf2k

    Japan could unleash a green-ish economy, go full throttle into geothermal and reduce it's oil dependencies. Japan is an island nation for pete's sake, the water characteristics alone can become the country's air conditioner. Google deep lake water cooling from Toronto as an example

    Japan already has a great transit system and more engineers than doctors. Give them a new energy reduction project without reducing amenity.

  • 0

    Antonios_M

    Kan warns of Greece-like debt crisis

    Quit the sake and drink more ouzo, Mr. Kan. Seriously, comments like this one make me wonder about the actual stability of the Japanese economy and yen. Of course, we can not compare the two economies since Greece depends almost totally on shipping and tourism industry, while Japan is a different case. The aging population of Japan though is alarming and this is where they should focus.

  • 0

    sf2k

    This is a bold stroke and in fact will help Japan wake up to become pragmatic to itself rather than just blind about its future. The end of anemic leaders at long last.

  • 0

    ACrowe

    "That is why successful companies making great products don't have any employees, just one guy pushing buttons and eating donuts."

    Classic!

    I wonder if they teach that business model at the Harvard Business School. It would go a long way in explaining why their most famous graduate, W., drove the U.S. economy into the ground.

  • 0

    GJDailleult

    When politicians talk up the chance of facing a crisis, it makes you think they know they don't face such a crisis. If they really were facing a crisis, they would be trying to hide it. Japan and Greece (and everybody else) both have the same root problem, deflation due to the end of the era of inflationary credit-expansion economic "growth", but otherwise their individual situations and problems are very different.

    Don't mean that Japan doesn't have huge problems, just that throwing the idea of a "Greece like debt crisis" around is just for effect and a good soundbite.

  • 0

    Klein2

    Nonews: sarcasm in reply to some other poster. nuff said. Actually, it looks like ACrowe fell for it too. Look guys. Good companies need good employees. Some other joker said they didn't.

    Scrote: The point stands on munis. Other countries have layers and layers of debt and skeletons in the closet, causing rolling recessions and perpetual crises. Not Japan. And actually, I think your bank example ignores assets. Plenty of banks would be willing to loan 6-7 times annual income if you had, what, 100-1000 times collateral and owned the bank, haha. But that really STILL isn't the point is it? The fact is that investors can and DO snap up Japanese debt at 1-2%. Don't call me an idiot. Call them idiots, because they obviously aren't as smart as you, right? All the money professionals in the world should be asking YOU for advice because they just keep making stable money in Japan while the US and Europe and the Middle East are burning monopoly money.

    "Flight to quality" means that investors rely on Japan to be Japan and they reward that by accepting very low interest rates. Kan does not believe the market. He thinks he can do better. I don't. He wants to make bond holders happy? They are already happy, obviously, or interest rates would be 10%. He should think about getting this country moving FIRST. THAT is his job as P.M.

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