The Biggest Ponzi Scheme on the Planet-The U.S. Government
"American Economic Exceptionalism Explained"                     USAPonzi                                      by John W. White   Mar 29, 2013

Japan Ponzi
Jun 2013


The economy in Japan has been essentially flat since 1989 as the lost decade has now turned into more than 2 decades.  What is even more troubling is that the government has been forced to continue to increase government spending as tax revenues decrease in order to sustain this nominally flat economy.   As a result Japan has accumulated what some people call an unprecedented level of national debt which is currently at 240% of GDP (the U.S. debt/GDP is 107%).  The Japan budget deficit is close to 10% of GDP (the U.S. deficit is about 6.5% of GDP).   Japan's government spends about 200 yen for every 100 yen of tax revenue (the U.S. Government is spending about $1.40 (cash-basis) and over $3 (GAAP-basis) for every $1.0 of tax revenue).


The following chart demonstrates how the Japanese government is conducting a Ponzi scheme that is very similar to that of the U.S. Government by spending borrowed money to sustain the Japan economy.   When the government spends significantly more than their tax revenues for more than 30 years this is nothing but a classic Ponzi scheme.  Everyone knows that the Japanese economy would be impacted negatively (even significantly negatively) if they curtailed this deficit spending.  No one wants to be held accountable for that action so the Ponzi scheme continues.

Japan Tax Revenue and Expenditures
Source: Hayman Capital

 

The problem demonstrated by this chart is the cash deficit that the Japan fiscal spending is incurring.   But Japan, like the U.S., has accruing social benefit liabilities over and above this cash deficit.  I do not have a way to judge the size of this accrued liability which when added to the Japan national debt would be what David Walker of the Comeback America Initiative would call the Japan national burden.  I feel certain that the "Japan national burden" would be significantly higher than this "cash" national debt.


Japan is also experiencing a similar demographic problem to the U.S., possibly even more acute, with an aging population that is causing the percentage of population that is of productive working age to decrease and the percentage of population that is retired to increase.  For years the Japanese people have been significant savers and therefore have been ready buyers of government bonds but now as more people retire there will be a tendency for these retirees to be sellers of bonds (to finance their retirements) rather than to be buyers of bonds.


The Bank of Japan has had a zero interest rate policy (ZIRP) for some time which has held down their borrowing cost much as the Fed has done here in the U. S. but even with that policy they are spending 22% of their tax revenues to cover the interest expense on this massive national debt.


So Japan too has a government Ponzi scheme in place in order to just sustain a flat economy and as a result is creating a massive national debt.   With no growth, an aging and frugal population, a huge deficit, and a huge and growing debt; the only constructive way out of their dilemma would be through growth and that seems unlikely.


The recently announced policy to generate inflation is the Japan government's attempt to create growth by weakening the yen relative to the dollar and the euro and therefore make the Japanese exports more competitive with the rest of the global economy.   However the level of QE (money printing) required to make this strategy work is so massive that I would question just how effective that strategy can be.


So all of the major economies (U.S, EU, China, and Japan) are running their own versions of a Ponzi scheme to sustain the growth rate of their economies but as a result are generating unprecedented levels of debt and future financial commitments to sustain these Ponzi schemes.


It is amazing to me that the financial markets are continuing to accept these low interest rates relative to the risk represented by these growing national debts.  What chance do we have in the U.S. of ever paying off our national debt (7X our tax revenue) let alone paying off our national burden (29X our tax revenue)?   What chance does Japan have of ever paying off their national debt (28X their tax revenue) even if you ignore their accruing future social benefit liabilities?


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