The Japanese government can afford its enormous debt because it owns the bank that is its principal creditor. But competitors are attempting to force Japan Post Bank's privatization. If they succeed, they could propel the country into debt servitude along with other credit-strapped nations.
When an IMF spokeswoman said at a news conference on March 17 that Japan has the financial means to recover from its devastating tsunami, skeptical bloggers wondered what she meant. Was it a polite way of saying, "You're on your own?"
Spokeswoman Caroline Atkinson said, "The most important policy priority is to address the humanitarian needs, the infrastructure needs and reconstruction and addressing the nuclear situation. We believe that the Japanese economy is a strong and wealthy society and the government has the full financial resources to address those needs." Asked whether Japan had asked for IMF assistance, she said, "Japan has not requested any financial assistance from the IMF."
Skeptics asked how a country with a national debt that was over 200% of GDP could be "strong and wealthy." In a CIA Factbook list of debt to GDP ratios of 132 countries in 2010, Japan was at the top of the list at 226%, passing up even Zimbabwe, ringing in at 149%. Greece and Iceland were fifth and sixth, at 144% and 124%. Yet Japan's credit rating was still AA, while Greece and Iceland were in the BBB category. How has Japan managed to retain not only its credit rating but its status as the second or third largest economy in the world, while carrying that whopping debt load?
The answer may be that the Japanese government has a captive funding source: it owns the world's largest depository bank. As U.S. Vice President Dick Cheney said, "Deficits don't matter." They don't matter, at least, when you own the bank that is your principal creditor. Japan has remained impervious to the speculative attacks that have crippled countries such as Greece and Iceland because it has not fallen into the trap of dependency on foreign financing.
Japan Post Bank is now the largest holder of personal savings in the world, making it the world's largest credit engine. Most money today originates as bank loans, and deposits are the magic pool from which this credit-money is generated. Japan Post is not only the world's largest depository bank but its largest publicly-owned bank. By 2007, it was also the largest employer in Japan, and the holder of one-fifth of the national debt in the form of government bonds.
The Japanese government can afford its enormous debt because the interest it pays is extremely low. For the private economy, public debt IS money. A large public debt owed to the Japanese government and the Japanese people means Japanese industries have the money to rebuild. But politicians are under heavy pressure to privatize this massive credit engine; and if Japan Post is sold off to private investors, interest rates could rise, plunging the government into an international debt trap it has so far largely escaped.
The Battle Over Japan Post
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