From class, Goran, on occasion, has discussed Japan and their current economic situation. As of now, we know that their debt to GDP ratio is at 190% and the public buys government bonds, thus Japan is O.K. This article discusses that the Japanese government needs to make radical changes to its current system and elect bolder policy makers. The author notes three problems with Japan's situation:
1. The Japanese are depleting all their savings on government bonds and not investing in businesses', also known as the crowd out effect. Eventually, Japan will need to rely on foreign investors to buy government bonds.
2. Japan is deflating its currency in order to stop inflation from occurring. However, this pushes the debt to GDP ratio inexorably higher. And prices will continue to stay the same or lower as the standard of living stays the same. Thus, deflation leads to less consumption by consumers.
3. In the contemporary global situation, the country cannot rely heavily on export to fuel their economic growth; instead they must rely on domestic growth to fuel GDP advancement.
These problems will be fixed by electing bolder policymakers who will create structural reforms to raise productivity, fiscal reforms to boost growth and a strong monetary stimulus, all at once, to shock the economy back to life.
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