Japan’s Slow-Motion Tsunami

Korea was modeled after Japan.  The similarities with Japan are so there, while there are some significant differences in terms of debt structure, etc.

From Testosterone Pit:

Borrowing at near zero cost has been its hallmark for years. Due to Japan’s institutional setup and cohesive insular psychology, the government has been able to sell 95% of its debt within Japan. Individuals directly or indirectly hold over 50%. Government-owned or controlled institutions hold over 40%. Among them: the Government Pension Investment Fund, one of the largest pension funds in the world; the government-owned Post Bank, the largest deposit holder in the world; and financial institutions the government can lean on. Then there is the busy Bank of Japan. Foreigners hold only 5%, for decorative purposes. This system hermetically protects the government from any discipline that credit markets could otherwise impose.

But in Japan, you see groomed streets and gleaming public transportation infrastructure. You see innovation, energy, packed trains, and crowds milling around. You see urban renewal where whole city blocks of dilapidated buildings were replaced with new structures. Debt funding is a great thing. For a while. As long as the Japanese believe that the government can meet its obligations, and for as long as the country doesn’t run low on investors.

Which is about to happen. The younger generations are less numerous and earn less, and thus pay less in taxes, than their predecessor generations. They buy fewer houses, and when they buy, it’s later in life. They have to work harder for less. They have no money to save, and they no longer have any illusions that the pension system will be there for them.

Unlike booms and busts, demographic changes advance at a glacial pace. But the first waves of that slow-motion tsunami have already reached the land. This time, it’s the younger generations who are paying the price. But it remains uncertain for how long and to what extent they’re willing and able to pay it—to prop up the system and allow their elders to enjoy their long retirement years.

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