Balance Sheet of Japan
[updated on January 8]
The amount of total assets of Japan, including those held by businesses, banks, households, and the government, is 5385 trillion yen ($67 trillion at $1 = 80 yen).
The amount of total debts of Japan, including those held by businesses, banks, households, and the government, is 5134 trillion yen ($64 trillion at $1 = 80 yen).
Though it is often said that the amount of Japanese Government debts is 200% of Japan's GDP, the balance sheet of Japan is stable.
However, to erase negative speculation and anxiety of the international community, the Japanese Government plans to raise a rate of consumption tax from current 5% to 10% in a few or several years, though this rate is fairly lower than in equivalent taxes in European countries and so on.
The last time the consumption tax rate was increased, namely from 3% to 5%, in Japan was in 1997. This tax hike however resulted in a drastic increase in the number of suicides while contributing little eventually to improvement of the national financial state.
It shows that a tax hike really kills people. An economic theory that should apply to Japan is different from that applied to Greece or even Germany. The Japan is a big country. It has been the second largest economy next to the US for 40 years. It has more resources than economists and journalists in the world think. But, it has deeply rooted problems in society, too.
Yet, this alarming increase of the number of suicides in 1997 must be noted, since it was when the Japanese Gov. faced strong pressure from the American and British financial sectors to liberalize the Japanese financial industry. Accordingly, the mindsets of Japanese leaders in the business/industrial sectors as well as of the Government changed. They came to fully believe the Wall Street type of value judgement. They started to neglect poor Japanese or accept a widening gap between the poor and the rich while 90% of the Japanese was confident that they belonged to the middle class in 1980's and early 1990's.
Now, suppose that households have total assets H, businesses B, and the Government G..
National Assets = H + B + G
If the Government takes the amount of tax TH from households and TB from businesses,
Gov. Tax Revenues = TH + TB
But the Gov. has to spend all the tax revenues for social welfare (SH) and public work (SB) while the former is regarded as income of households and the latter of businesses.
Resultant Households Assets: H - TH + SH
Resultant Businesses Assets: B - TB + SB
Resultant Gov. Assets: G + TH + TB - SH - SB = G
As TH + TB = SH + SB, for the Gov. spends all it collects in the form of taxation.
National Assets = (H - TH + SH) + (B - TB + SB) + G
= H + B + G + (SH + SB) - (TH + TB)
= H + B + G
Though there is no change in total assets of a nation, the issue at point is that TH is not equal to SH; TB is not equal to SB. Or usually, TH > SH and TB < SB. Therefore, households get poorer and business become richer along with execution of taxation.
Households: H --> (H - TH + SH), decreasing.
Businesses: B --> (B - TB + SB), increasing.
So, in this scheme, the more the Gov. collects tax, the more a gap between businesses (rich men) and households (poor men) will be. Accordingly, tax revenues from households will decrease. If businesses resist paying more tax, the total tax revenues will decrease while households are getting poorer. Put simply, if the total amount of the national assets does not change, money is being transferred from households to businesses through the tax system.
But, the Gov. may issue bonds (D) which are mostly purchased by domestic businesses (banks, etc.) in the case of Japan. The money the Gov. obtains will be used for budget execution (D = SH + SB)..
Resultant Households Assets: H + SH
Resultant Businesses Assets: B + (D - D) + SB = B + SB
Resultant Gov. Assets: G + (- D + D - SH - SB) = G - D
National Assets = H + SH + B + SB + G - D = H + B + G
= H + B + G
(Note: When the Government issues the bonds "- D," it can obtain money "+ D" from businesses. When the businesses purchase the government bonds "+ D," they spend "- D." Here the case of no default is assumed. )
In this case, tax revenues from households will not decrease as their assets increase from H to H + SH. It goes for businesses, too. But the assets of the Government decreases from G to G - D. Eventually, the Government has to raise tax to recover D or print and issue government notes in an amount of D to cancel "- D."
So, though there is no change in total national assets, if the Government collects tax, households get poorer; if the Government issues bonds, only the Government decreases assets or incurs debts. This is close to Japan's case. The most important thing is that, unlike other countries, Japan can bear this Government's asset decrease of "G - D," if it is $ trillions, since it has many resources, including industrial power, a potential of collecting more tax, and the size of GDP
As Japan sets the consumption tax rate at 5% now, which is lower than those in most of other countries, and issues Gov. bonds reaching hundreds of rillions of yen ($ trillions), Japan has at least so far taken reasonable measures to finance government administration and operations. Nonetheless, it is alarming that the number of Japanese citizens who commit a suicide is more than 30,000 per year, which is more than the number of deaths in the 3/11 Tsunami Disaster.
Japan should continue to adopt the 5% consumption tax rate and issue trillion yen bonds. But, it is time for Japan to introduce a new economics paradigm and a new financial theory.
(As for 200% burden of the Japanese Gov. debts over its GDP, it is mainly caused by the trend that tens of thousands of Japanese businesses transfer their factories, plants, and business to China and other Asian countries to leverage cheap labor costs in those countries. It must be discussed in a different context than a simple national bankruptcy discussion. But you should note that virtually 30% of GDPs of China, South Korea, Taiwan, Thailand, etc. are originally Japan's.)
Yet, another point at issue is how far the Government can bear this deficit "D." If "G - D" becomes minus, it would be a state bankruptcy. To avoid it, as stated, the Government should raise a tax or print and issue government notes. Bet, before it reaches this state, the Government would evaluate and calculate how much its basic assets "G" it has.
In Japan's case, it is probably 400% of its GDP. Therefore, if "D" gets equal to 200% of GDP as is now in Japan, there is no problem.
G = 400% of Japan's GDP
D = 200% of Japan's GDP
Resultant Government Assets = G - D = 200% of GDP
So, though the debts (- D) the Japanese government incurs now reaches 200% of its GDP, there is no fear of state bankruptcy unlike Greece, etc.
(to be contributed...)
*** *** *** ***
Exo 1:7 And the children of Israel were fruitful, and increased abundantly, and multiplied, and waxed exceeding mighty; and the land was filled with them.
Exo 1:8 Now there arose up a new king over Egypt, which knew not Joseph.
Exo 1:9 And he said unto his people, Behold, the people of the children of Israel are more and mightier than we:
Exo 1:10 Come on, let us deal wisely with them; lest they multiply, and it come to pass, that, when there falleth out any war, they join also unto our enemies, and fight against us, and so get them up out of the land.
Exo 1:11 Therefore they did set over them taskmasters to afflict them with their burdens. And they built for Pharaoh treasure cities, Pithom and Raamses.