Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Stock Market Trend Forecast Early 2022 - Tech Growth Value Stocks Rotation - 18th Jan 22
Stock Market Sentiment Speaks: Are We Setting Up For A 'Mini-Crash'? - 18th Jan 22
Mobile Sports Betting is on a rise: Here’s why - 18th Jan 22
Exponential AI Stocks Mega-trend - 17th Jan 22
THE NEXT BITCOIN - 17th Jan 22
Gold Price Predictions for 2022 - 17th Jan 22
How Do Debt Relief Services Work To Reduce The Amount You Owe? - 17th Jan 22
RIVIAN IPO Illustrates We are in the Mother of all Stock Market Bubbles - 16th Jan 22
All Market Eyes on Copper - 16th Jan 22
The US Dollar Had a Slip-Up, but Gold Turned a Blind Eye to It - 16th Jan 22
A Stock Market Top for the Ages - 16th Jan 22
FREETRADE - Stock Investing Platform, the Good, Bad and Ugly Review, Free Shares, Cancelled Orders - 15th Jan 22
WD 14tb My Book External Drive Unboxing, Testing and Benchmark Performance Amazon Buy Review - 15th Jan 22
Toyland Ferris Wheel Birthday Fun at Gulliver's Rother Valley UK Theme Park 2022 - 15th Jan 22
What You Should Know About a TailoredPay High Risk Merchant Account - 15th Jan 22
Best Metaverse Tech Stocks Investing for 2022 and Beyond - 14th Jan 22
Gold Price Lagging Inflation - 14th Jan 22
Get Your Startup Idea Up And Running With These 7 Tips - 14th Jan 22
What Happens When Your Flight Gets Cancelled in the UK? - 14th Jan 22
How to Profit from 2022’s Biggest Trend Reversal - 11th Jan 22
Stock Market Sentiment Speaks: Are We Ready To Drop To 4400SPX? - 11th Jan 22
What's the Role of an Affiliate Marketer? - 11th Jan 22
Essential Things To Know Before You Set Up A Limited Liability Company - 11th Jan 22
NVIDIA THE KING OF THE METAVERSE! - 10th Jan 22
Fiscal and Monetary Cliffs Have Arrived - 10th Jan 22
The Meteoric Rise of Investing in Trading Cards - 10th Jan 22
IBM The REAL Quantum Metaverse STOCK! - 9th Jan 22
WARNING Failing NVME2 M2 SSD Drives Can Prevent Systems From Booting - Corsair MP600 - 9th Jan 22
The Fed’s inflated cake and a ‘quant’ of history - 9th Jan 22
NVME M2 SSD FAILURE WARNING Signs - Corsair MP600 1tb Drive - 9th Jan 22
Meadowhall Sheffield Christmas Lights 2021 Shopping - Before the Switch on - 9th Jan 22
How Does Insurance Work In Europe? Find Out Here - 9th Jan 22
MATTERPORT (MTTR) - DIGITIZING THE REAL WORLD - METAVERSE INVESTING 2022 - 7th Jan 22
Effect of Deflation On The Gold Price - 7th Jan 22
Stock Market 2022 Requires Different Strategies For Traders/Investors - 7th Jan 22
Old Man Winter Will Stimulate Natural Gas and Heating Oil Demand - 7th Jan 22
Is The Lazy Stock Market Bull Strategy Worth Considering? - 7th Jan 22
METAVERSE - NEW LIFE FOR SONY AGEING GAMING GIANT? - 6th Jan 2022
What Elliott Waves Show for Asia Pacific Stock and Financial Markets 2022 - 6th Jan 2022
Why You Should Register Your Company - 6th Jan 2022
4 Ways to Invest in Silver for 2022 - 6th Jan 2022
UNITY (U) - Metaverse Stock Analysis Investing for 2022 and Beyond - 5th Jan 2022
Stock Market Staving Off Risk-Off - 5th Jan 2022
Gold and Silver Still Hungover After New Year’s Eve - 5th Jan 2022
S&P 500 In an Uncharted Territory, But Is Sky the Limit? - 5th Jan 2022

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Global Economies Debt Crisis, Japan Heading for Currency Crisis

Economics / Global Debt Crisis Jan 25, 2010 - 09:47 AM GMT

By: Paul_L_Kasriel

Economics

Diamond Rated - Best Financial Markets Analysis ArticleA lot has been written in recent months about the exploding U.S. Treasury debt and how the U.S. dollar will surely suffer as a result of it. And, there is no doubt that the debt has exploded and is projected to continue rising at a relatively rapid rate for as far as the eye can see. The relatively rapid projected increase in U.S. Treasury debt 10 years out is primarily due to the large number of baby-boomers becoming Medicare recipients and the projections of rising Medicare costs per baby-boomer.


Shown in Chart 1 is fiscal year-end U.S. Treasury debt as a percent of nominal U.S. GDP, including the Congressional Budget Office's (CBO) projections of these percentages for the fiscal years 2009 through 2019. At the end of fiscal year 1950, Treasury debt was 94.1% of GDP, reflecting the debt hangover from WWII. The projection for the end of fiscal 2009 is 84.1%. Over the 10 years ended 2019, the CBO projects that Treasury debt outstanding will average 96.4% -- a record for the post-WWII era. Pretty scary stuff!

Chart 1


Although I do not have data on projections on government debt-to-GDP ratios for other developed economies, I do have actual historical data, which are shown in Chart 2. In 2008, the latest complete data for all, Japan leads developed economies with regard to government debt-to-GDP ratios, coming in at 167.6%, followed by the U.S. at 70.2%, the euro-zone at 69.3% and, bringing up the rear, the UK at 51.7%. So, Japan, as of 2008, already had a much higher government debt-to-GDP ratio than the U.S. is projected to have in the 10 years ended 2019. Talk about scary stuff!

Chart 2


Japan has experienced a high national saving rate, in part because of a high household saving rate (see Chart 3). Japan's high national saving rate is reflected by its current account surpluses in the past 25 years (see Chart 4). In effect, the Japanese have saved so much that they not only have been financing their own government deficits but exporting financial capital to other economies to help finance their government deficits, too.

Chart 3

Chart 4


But will Japan be able to keep financing its own government deficits internally? As shown in Chart 5, the Japanese population is declining. One of the reasons the Japanese population is declining is that it is aging rapidly. As more and more Japanese retire, the household saving rate will decline further as Japanese seniors deplete their accumulated financial capital to live on. Although a lot is written in reference to the government debt problems the U.S. is about to incur and how the U.S. dollar will depreciate as a result, very little seems to be written, in the U.S. press, at least, about the looming debt problem faced by Japan.

Chart 5


With respect to the U.S., although the federal government has stepped up its rate of dissaving, households have stepped up their rate of saving. From 1999 through 2006, U.S. households were consistently net demanders of funds. That is, their net acquisitions of financial assets were consistently less than their net accumulation of debt (see Chart 6). Starting in 2007, U.S. households once again conformed to the post-war norm by becoming net suppliers of funds. In the first three quarters of 2009, U.S. household purchases of U.S. Treasury debt outstripped foreign purchases of U.S. debt, including foreign official purchases (see Chart 7).

Chart 6

Chart 7


In sum, if you want to worry about government debt problems in the developed economies, I suggest you start with Japan. Its current government debt-to-GDP ratio is considerably higher than what is projected for the U.S. Japan's household saving rate is declining while the that of the U.S. has started to climb again. If you were a middle-aged Chinese or Indian investor, where would you rather place some of your funds? In Japan, with its declining population, entrepreneurial-sapping government regulation and cultural bias against individualism? Or in the U.S., with its still growing population and a culture of entrepreneurship? If there is going to be a government debt-induced currency crisis in the next 10 years in a developed economy, my money is on the yen, not the dollar.

Note: Don't forget to watch "Feed the Fish http://www.feedthefishmovie.com/"

Paul Kasriel is the recipient of the 2006 Lawrence R. Klein Award for Blue Chip Forecasting Accuracy

By Paul L. Kasriel
The Northern Trust Company
Economic Research Department - Daily Global Commentary

Copyright © 2010 Paul Kasriel
Paul joined the economic research unit of The Northern Trust Company in 1986 as Vice President and Economist, being named Senior Vice President and Director of Economic Research in 2000. His economic and interest rate forecasts are used both internally and by clients. The accuracy of the Economic Research Department's forecasts has consistently been highly-ranked in the Blue Chip survey of about 50 forecasters over the years. To that point, Paul received the prestigious 2006 Lawrence R. Klein Award for having the most accurate economic forecast among the Blue Chip survey participants for the years 2002 through 2005.

The opinions expressed herein are those of the author and do not necessarily represent the views of The Northern Trust Company. The Northern Trust Company does not warrant the accuracy or completeness of information contained herein, such information is subject to change and is not intended to influence your investment decisions.

Paul L. Kasriel Archive

© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in