Why Japan can sustain 200% Debt to GDP Ratio. While the US Economy with 126% Debt is about to implode
When you read the newspapers, economists are constantly panicking about the US national debt, which has crossed a staggering $40 trillion and stands at 126% of its GDP (meaning the country owes 26% more than the value of everything it produces in a year).Yet, Japan has a massive gross debt-to-GDP ratio sitting at over 200% to 264%—almost double the US load! And they have sustained this for 30 years without a financial collapse. How does Japan manage it? Gross debt vs net debt: Think of a person who owes $200,000 on a house, but has $150,000 sitting in the bank. His gross debt is large, but his net debt is very small. Japan has a huge bank account: The Japanese government owns trillions in financial assets, like foreign stocks and bonds. When you subtract what they own from what they owe, Japan's net debt drops to a very safe 77% to 78%. The US has no safety cushion: The US government spends everything it gets and doesn't hold large financial asset reserves. Its gross d...