In an April 2012 article in Forbes titled "If Japan Is Broke, How Is It Bailing Out Europe?" Eamonn Fingleton pointed out that the Japanese government was by far the largest single non-euro zone contributor to the latest Euro rescue effort. This, he said, is "the same government that has been going round pretending to be bankrupt (or at least offering no serious rebuttal when benighted American and British commentators portray Japanese public finances as a trainwreck)."
Noting that it was also Japan that rescued the International Monetary Fund (IMF) system virtually single-handedly at the height of the global panic in 2009, Fingleton asked: How can a nation whose government is supposedly the most overborrowed in the advanced world afford such generosity? ...
The betting is that Japan's true public finances are far stronger than the Western press has been led to believe. What is undeniable is that the Japanese Ministry of Finance is one of the most opaque in the world ...
Fingleton acknowledged that the Japanese government's liabilities are large, but said we also need to look at the asset side of the balance sheet: [T]he Tokyo Finance Ministry is increasingly borrowing from the Japanese public not to finance out-of-control government spending at home, but rather abroad.
Besides stepping up to the plate to keep the IMF in business, Tokyo has long been the lender of last resort to both the U.S. and British governments. Meanwhile it borrows 10-year money at an interest rate of just 1.0 percent, the second lowest rate of any borrower in the world after the government of Switzerland.
It's a good deal for the Japanese government: it can borrow ten-year money at 1 percent and lend it to the United States at 1.6 percent (the going rate on US ten-year bonds), making a tidy spread. Japan's debt-to-GDP ratio is nearly 230 percent, the worst of any major country in the world. Yet Japan remains the world's largest creditor country, with net foreign assets of $3.19 trillion. In 2010, its GDP per capita was more than that of France, Germany, the UK and Italy. And while China's economy is now larger than Japan's because of its burgeoning population (1.3 billion versus 128 million), China's $5,414 GDP per capita is only 12 percent of Japan's $45,920.
How to explain these anomalies? Fully 95 percent of Japan's national debt is held domestically by the Japanese themselves. (snip)
All of this has implications for Americans concerned with an out-of-control national debt. Properly managed and directed, it seems, the debt need be nothing to fear. Like Japan, and unlike Greece and other euro zone countries, the United States is the sovereign issuer of its own currency.
If it wished, Congress could fund its budget without resorting to foreign creditors or private banks. It could do this either by issuing the money directly or by borrowing from its own central bank, effectively interest-free, since the Fed rebates its profits to the government after deducting its costs.
A little quantitative easing can be a good thing, if the money winds up with the government and the people rather than simply in the reserve accounts of banks. The national debt can also be a good thing. As Federal Reserve Board Chairman Marriner Eccles testified in hearings before the House Committee on Banking and Currency in 1941, government credit (or debt) "is what our money system is."
"If there were no debts in our money system," said Eccles, "there wouldn't be any money."
Properly directed, the national debt becomes the spending money of the people. It stimulates demand, stimulating productivity. To keep the system stable and sustainable, the money just needs to come from the nation's own government and its own people, and needs to return to the government and people.