Low Interest Saves the Day?
Posted on 5/22/2012 by Don Creech
Japan has lower interest rates than even the United States. So what? Is that supposed to be their salvation? Yes, most of the bonds are sold to their own citizens. The rapidly aging population is reaching the point of no return. A shrinking population will not be economically strong enough to restore the lost AAA credit rating. When there aren't enough citizens to buy the bonds, global competition for capital will leave them competing with other debtors in Europe.
The current "stimulus" program does not create growth. It does create activity by taking money out of the private system to be directed through government entities. The earthquake and tsunami did create damage that needs repair. The capital spent on repairs just redirects it from other options that could be more productive in the private sector. If government stimulus was the be-all end-all to economic woes, the Nikkei should have been able to return to its 1989 40,000 peak years ago. In spite of repeated government stimuli, the Nikkei-225 languishes at 8,725. A shrinking population = shrinking consumer base = lower taxes. It cannot and will not support continuing increases in government spending. The next tsunami is likely the devastation of higher interest rates.
Japan managed to survive in a global expansion. Currently. global growth is insufficient to support Japan's, Europe's and the U.S.A.'s need for tax revenue or affordable capital. We are facing the reality of too few confident consumers. This a demographic problem that cannot be changed by any government stimulus program.