The Myth That Japan Is Broke: The World’s Largest “Debtor” Is Now the World’s Largest Creditor

Japan’s massive government debt conceals massive benefits for the Japanese people, with lessons for the U.S. debt “crisis.”

In an April 2012 article in Forbes titled “If Japan Is Broke, How Is It Bailing Out Europe?”, Eamonn Fingleton pointed out the Japanese government was by far the largest single non-eurozone contributor to the latest Euro rescue effort.  This, he said, is “the same government that has been going round pretending to be bankrupt (or at least offering no serious rebuttal when benighted American and British commentators portray Japanese public finances as a trainwreck).”  Noting that it was also Japan that rescued the IMF system virtually single-handedly at the height of the global panic in 2009, Fingleton asked:

How can a nation whose government is supposedly the most overborrowed in the advanced world afford such generosity? . . .

The betting is that Japan’s true public finances are far stronger than the Western press has been led to believe. What is undeniable is that the Japanese Ministry of Finance is one of the most opaque in the world . . . .

Fingleton acknowledged that the Japanese government’s liabilities are large, but said we also need to look at the asset side of the balance sheet:

[T]he Tokyo Finance Ministry is increasingly borrowing from the Japanese public not to finance out-of-control government spending at home but rather abroad. Besides stepping up to the plate to keep the IMF in business, Tokyo has long been the lender of last resort to both the U.S. and British governments. Meanwhile it borrows 10-year money at an interest rate of just 1.0 percent, the second lowest rate of any borrower in the world after the government of Switzerland.

It’s a good deal for the Japanese government: it can borrow 10-year money at 1 percent and lend it to the U.S. at 1.6 percent (the going rate on U.S. 10-year bonds), making a tidy spread.

Japan’s debt-to-GDP ratio is nearly 230%, the worst of any major country in the world.  Yet Japan remains the world’s largest creditor country, with net foreign assets of $3.19 trillion.  In 2010, its GDP per capita was more than that of France, Germany, the U.K. and Italy.  And while China’s economy is now larger than Japan’s because of its burgeoning population (1.3 billion versus 128 million), China’s $5,414 GDP per capita is only 12 percent of Japan’s $45,920.

How to explain these anomalies?  Fully 95 percent of Japan’s national debt is held domestically by the Japanese themselves.

Over 20% of the debt is held by Japan Post Bank, the Bank of Japan, and other government entities.  Japan Post is the largest holder of domestic savings in the world, and it returns interest to its Japanese customers.  Although theoretically privatized in 2007, it has been a political football, and 100% of its stock is still owned by the government.  The Bank of Japan is 55% government-owned and 100% government-controlled.

Of the remaining debt, over 60% is held by Japanese banks, insurance companies and pension funds.  Another chunk is held by individual Japanese savers.  Only 5% is held by foreigners, mostly central banks.  As noted in a September 2011 article in The New York Times:

The Japanese government is in deep debt, but the rest of Japan has ample money to spare.

The Japanese government’s debt is the people’s money.  They own each other, and they collectively reap the benefits.

Myths of the Japanese Debt-to-GDP Ratio

Japan’s debt-to-GDP ratio looks bad.  But as economist Hazel Henderson notes, this is just a matter of accounting practice—a practice that she and other experts contend is misleading.  Japan leads globally in most areas of high-tech manufacturing, including aerospace.  The debt on the other side of its balance sheet represents the payoffs from all this productivity to the Japanese people.

According to Gary Shilling, writing on Bloomberg in June 2012, more than half of Japanese public spending goes for debt service and social security payments.  Debt service is paid as interest to Japanese “savers.”  Social security and interest on the national debt are not included in GDP, but these are actually the social safety net and public dividends of a highly productive economy.  These, more than the military weapons and “financial products” that compose a major portion of U.S. GDP, are the real fruits of a nation’s industry.  For Japan, they represent the enjoyment by the people of the enormous output of their high-tech industrial base.

Shilling writes:

Government deficits are supposed to stimulate the economy, yet the composition of Japanese public spending isn’t particularly helpful. Debt service and social-security payments — generally non-stimulative — are expected to consume 53.5 percent of total outlays for 2012 . . . .

So says conventional theory, but social security and interest paid to domestic savers actually do stimulate the economy.  They do it by getting money into the pockets of the people, increasing “demand.”  Consumers with money to spend then fill the shopping malls, increasing orders for more products, driving up manufacturing and employment.

Myths About Quantitative Easing

Some of the money for these government expenditures has come directly from “money printing” by the central bank, also known as “quantitative easing.”  For over a decade, the Bank of Japan has been engaged in this practice; yet the hyperinflation that deficit hawks said it would trigger has not occurred.  To the contrary, as noted by Wolf Richter in a May 9, 2012 article:

[T]he Japanese [are] in fact among the few people in the world enjoying actual price stability, with interchanging periods of minor inflation and minor deflation—as opposed to the 27% inflation per decade that the Fed has conjured up and continues to call, moronically, “price stability.”

He cites as evidence the following graph from the Japanese Ministry of Internal Affairs:

How is that possible?  It all depends on where the money generated by quantitative easing ends up.  In Japan, the money borrowed by the government has found its way back into the pockets of the Japanese people in the form of social security and interest on their savings.  Money in consumer bank accounts stimulates demand, stimulating the production of goods and services, increasing supply; and when supply and demand rise together, prices remain stable.

Myths About the “Lost Decade”

Japan’s finances have long been shrouded in secrecy, perhaps because when the country was more open about printing money and using it to support its industries, it got embroiled in World War II.  In his 2008 book In the Jaws of the Dragon, Fingleton suggests that Japan feigned insolvency in the “lost decade” of the 1990s to avoid drawing the ire of protectionist Americans for its booming export trade in automobiles and other products.  Belying the weak reported statistics, Japanese exports increased by 73% during that decade, foreign assets increased, and electricity use increased by 30%, a tell-tale indicator of a flourishing industrial sector.  By 2006, Japan’s exports were three times what they were in 1989.

The Japanese government has maintained the façade of complying with international banking regulations by “borrowing” money rather than “printing” it outright.  But borrowing money issued by the government’s own central bank is the functional equivalent of the government printing it, particularly when the debt is just carried on the books and never paid back.

Implications for the “Fiscal Cliff”

All of this has implications for Americans concerned with an out-of-control national debt.  Properly managed and directed, it seems, the debt need be nothing to fear.  Like Japan, and unlike Greece and other Eurozone countries, the U.S. is the sovereign issuer of its own currency.  If it wished, Congress could fund its budget without resorting to foreign creditors or private banks.  It could do this either by issuing the money directly or by borrowing from its own central bank, effectively interest-free, since the Fed rebates its profits to the government after deducting its costs.

A little quantitative easing can be a good thing, if the money winds up with the government and the people rather than simply in the reserve accounts of banks.  The national debt can also be a good thing.  As Federal Reserve Board Chairman Marriner Eccles testified in hearings before the House Committee on Banking and Currency in 1941, government credit (or debt) “is what our money system is.  If there were no debts in our money system, there wouldn’t be any money.”

Properly directed, the national debt becomes the spending money of the people.  It stimulates demand, stimulating productivity.  To keep the system stable and sustainable, the money just needs to come from the nation’s own government and its own people, and needs to return to the government and people.


Ellen Brown is an attorney and president of the Public Banking Institute,  In Web of Debt, her latest of eleven books, she shows how a private cartel has usurped the power to create money from the people themselves, and how we the people can get it back. Her websites are and

24 Responses

  1. She seems to be saying what I have long believed: that quantive easing money should be funneled to the 99%, rather than to the 1% greed-ocracy. The 99% will put it into circulation/use, whereas the greed-ocracy only shoves it into bank accounts, or into money-grubbing schemes.

    • Without a shadow of a doubt. The banks are a black hole, we will never see that money again. Unfortunately the taxpayer is on the hook. The banks lost the money and now they make interest lending to governments so the governments can give them money straight back to them in the form of bailouts. Quite a sweet deal, for the banks!

  2. Ellen I am a financial idiot. Certifiable. But to me, while all financial talk is “hand waving”, I *feel* I can understand the way you put things. Also, I am only guessing but think I am right that you’d be put down as a “left” leaning expert. If all this is right, I wonder what the main differences with the “right” experts are .. is it your feeling that they deliberately (or unconsiously) leave things out of the equation, as it were, for reasons of personal or corporate greed? That’s what I always say to myself, but as I indicate, I can’t reason my way out of a financial paper bag.

    • It feels to me like the conservatives have been neglectful of unemployment, moreso in the EU but also here in the US. When public spending is cut in the absence of other changes, economic activity shrinks and workforce reductions are the inevitable outcome (which further reduces private spending). It is naive to think private spending will just move in where public spending left off, and there is no historical evidence that this occurs either.

      Unemployment is rampant in today’s economy, yet it could be easy to treat with public policy. I’m not sure why but the conservatives seem to desire maintaining some degree of unemployment. If I had to guess I’d say the irrational fear of inflation is the primary motivator based on what I hear and read–if we were to reach full employment again, the economy would grow and wages likely increase, and this could trigger an inflationary cycle in the absence of other policy changes. But of course the government has levers to control inflation too (taxes, interest rate etc.) as well as scarcity of labor (immigration, H1-B).

      Given that unemployment is a reality today, and significant inflation really only a remote possibility in the absence of public sector and private sector spending, I conclude that the fear of policy making that could induce inflation is highly irrational, but it seems to be the kind of thinking that prevails in our government today, even among some US Democrats.

      • The reason that Conservatives, ie Republicans, want high unemployment is to use as a weapon against Obama in November. In case you are not aware, the Republican party platform has been, since before Obama was sworn into office, to use any and all means to thwart/block/defeat Obama, NO MATTER WHAT THE COST to the rest of us.

      • Jeff, if your implying government budgets and shrunk in the EU you are mistaken, they have all increased during “austerity” except Greece which has remained stable. About irrational fear of inflation, have you seen the price of gas? The price of gold and silver? The price of stocks? etc etc, inflation is with us already.

        • Looking at US data, the 12-month increase in the CPI from July 2012 was 1.4%. ( I see a mixed bag here of some prices increasing slightly, others decreasing. Technically I suppose any rate greater than zero is inflationary, but it isn’t clear to me from the data that we’re in a long-term upward trend.

          I’ve heard the cries that quantitative easing would trigger hyperinflation here, but I don’t see much evidence of that either. (Nor has QE done much to stimulate the economy, but that’s another matter.)

          I’m not an economist. I learn by reading the opinions of those who are, and forming my own opinions based on these and published facts. Some of this stuff is just common sense though–consumer demand is reduced by the unemployed, and to a degree the underemployed. When demand falls, prices do not rise, all other things equal. So it is reasonable to guess that if we were to get back to full employment, counter measures may be necessary to control inflation, and so it is possible that inflationary concerns are one reason policy makers are not pursuing full employment right now.

          I’m certainly open to hearing other theories. Dave Green may well be right in his assertion, but I’m not quite cynical enough to believe that the GOP could be so blatantly self-serving, or that the public would be so gullible to elect public officials who are.

          • Hello Jeff – I understand your point about employment but just because unemployment is high in the US does not mean lower prices & low demand, the unemployed American is competing with employed people all over the world for the same types of products and services, or more accurately raw materials. Wheat, corn, gas, gold, silver, sugar, high grade copper etc etc.

            When the prices of commodities go up, everyone is effected, job or no job, no matter where you are in the world. For Bernanke to come out and say low job growth in the USA is helping inflation it is complete and utter nonsense. Americans have to spend more to get the same thing because they are competing with employed Brazilians, Russians, Indians, Chinese etc etc who are getting richer each day and are bidding the prices up of products and services in the USA because everyone is competing for the same raw materials.

            The only way for prices not to inflate in the USA is for the US workforce to become more productive, ie Americans can pay the same price for something even though the raw material price has gone up because it was manufactured and distributed to the end user in a more efficient way than in the BRICS for example. Efficiency comes through low regulation, low taxes and good education (technological innovation). All these things are heading in the wrong direction in the West. Technological and efficiency advantages are the things that will keep prices low for Americans in the face of growing riches in the emerging economies, not high unemployment in the USA as The Fed would have us all believe.

            About the inflation figures and being self serving, to give an example of the joke that is the CPI, its starts measuring a steak, but if the price of a steak goes up it gets substituted for hamburger, according to the CPI stat its all meat, and this same process of substitution is used for all things measured by the CPI.

            If something goes up in price is it substituted with something that does the same job but is of lower quality to keep the figure down. The fact that the core needs of mankind, energy and food and not measured in the consumer price index should further highlight how misleading the figure is.

  3. […] own government and its own people, and needs to return to the government and people.Ellen Brown Web of DebtPosted: Wednesday, 5 September 2012 About Ellen BrownEllen Brown is an attorney, president of […]

  4. Ejemplo clasico quien gana con el dinero de todos, diferencia japón EEUU

  5. […] Ellen Brown Featured Writer Dandelion Salad Sept. 5, 2012 Image by gordon (TD8316) via […]

  6. Aah, another breath of fresh air from Ellen Brown.

    The Corporatists and repukes use the “debt” problem to scare people into thinking that we are going off a fiscal cliff, that we the sheeple are plunging headlong into a bottomless abyss, and that we must destroy this debt monster by what??? placing the burden of reducing it by shifting it onto the backs of the poor, the disenfranchised, and the rest of the 99%. The 1% criminal plutocracy plan to find money for this hyped-up debt crisis by their reverse-Robinhood demonic plan to take it from the social safety net programs, and by getting the middle class and the poor to pay what they say is our “debt.” That’s a bu!!$hit argument, because it really masks their true agenda – the 1% want more subsidies, lower taxes for themselves, and they want a total takeover of the economy (by none other than themselves). The present monetary and behemoth for-profit banking system works just fine for them, but not for the 99%, and even worse, it is a great danger to our economy, which can do so very much better.

    The Japanese people are very smart, and know the secrets of money and how to make it work for them. They are quietly doing a very ingenious thing.

    When you look at Japan, they have what looks like an enormous debt, but the debt is not a Godzilla – it is the people’s money, and the people are still able to get high-tech manufacturing, and as a result of their great productivity, the Japanese people are “winning.” (Not a Charlie joke) They can actually lend money to other countries, (totally awesome) and it does not weaken or deprive their people. Our banksters take our taxpayer money and invest it abroad, and we cannot use that money for investment here in the infrastructure, manufacturing jobs, and programs that we desperately need.

    Re Gary Shilling’s remarks, every word in this paragraph should be shouted back at the right wingnuts and the banktocracy:
    “…More than half of Japanese public spending goes for debt service and social security payments. Debt service is paid as interest to Japanese “savers.” Social security and interest on the national debt are not included in GDP, but these are actually the social safety net and public dividends of a highly productive economy. These, more than the military weapons and “financial products” that compose a major portion of U.S. GDP, are the real fruits of a nation’s industry. For Japan, they represent the enjoyment by the people of the enormous output of their high-tech industrial base.”

    This is so magnificent. We have been hypnotized by the 1% propaganda into NOT doing what Japan so brilliantly does. We need banks like the Japan Post, the Bank of Japan, public state, city, county and municipal banks to make our economy thrive. Then the profits would go to the people, we’d have jobs, social safety nets, productivity, infrastructure, healthcare, and all the life that we the people are crying out for.

    Let those in Congress and the Government who are bought begone, and let us put people in government with fresh ideas of success as we see how wonderfully things are working in places like Japan, and those successful banking models in Germany, and so many of the countries that Ellen has written about.

    And let us not forget that we have here in our own country a great public bank in the State of North Dakota, which has been working for the people in that great state for almost 100 years, and why the hell don’t the many financial experts and economists go on the widely seen TV shows to debate and discuss these great solutions?

  7. The article was spoiled from the start by quoting Eamon Fingleton. I attach a link to a critique of his factually incorrect, cherry picked account of Japan in ‘Spiked: Eamonn Fingleton’

  8. I have to disagree with some of the article’s arguments. My wife is from Tokyo and we visit once a year and we considered moving there. My account is where this macro hits micro and vice versa. Japan has been in recession and deflation for the last 20 years. Wages have been stagnant at a nominal level for at least 10 years, although per capita gdp was continued to increase it really doesn’t feel like it to any of our friends. The Japanese government has funneled tax money in to areas I would find questionable. I deeply respect that they continue to fund their welfare promises, unlike the US which tends to find ways to get out of them, but this has had the effect of funneling money towards the country’s senior citizens and away from other demographics. The most striking of which are young people. Essentially you’re moving money from a more productive section of society to a less productive one and one that also happens to consume less too. That’s been Japan’s problem all these years, it’s been a domestic consumption issue. The government has been trying to spur domestic consumption for the last 20 years with no luck. Part of the reason is psychological though, the Japanese loathe debt, unlike their US counterparts. So what happens when their incomes fall? They actually save more and reduce their spending. It’s an amazing phenomenon, but one that makes sense. They have price stability, but with declining wages it doesn’t make any difference. But this does result in them having to save more for the same things, of course the major expenses being housing and children. So you get a reduction in demand for all other products and services as these two items eat up more of the family income. You can argue that this isn’t bad, but it kind of is. As the costs for children, in particular education goes up, families have been having fewer kids. The result of this? Japan’s demographics shift toward the elderly. So you have fewer young people, with less income, paying for the benefits of the older people who have retired and need more medical care. Japan actually has negative population growth. This a massive challenge the country faces, coincidentally it’s the same problem China will have in about 10-15 years as well.

    I think the article’s argument isn’t necessarily bad. I like targeted Keynesian spending myself and believe it works. I mean, come one let’s be serious, how did the US get out of the great depression? Massive government spending, in this case for World War 2, but it was massive spending regardless. But using Japan as the example for it is a bit disingenuous. Unless your advice is, “don’t let any foreign entities control more than 5% of your debt.” in that case I think they’re spot on. I think that’s something Greece just learned the hard way.

    • Zeo – Japans social security obligations are unfunded like the West? If so the stagnation reasons you highlight are down to reckless government policy and nothing to do with the private sector and especially private savings.

      • Yes, Japan’s social security obligations are indeed unfunded. Government policy and savings in Japan are actually connected. It seems I didn’t get that across. The high savings rate in Japan is actually an effect and not a cause.

        Because the return on savings in Japan is so low this forces the Japanese to save even more of their incomes. The Japanese culturally do not believe in debt, it’s generally viewed very negatively by something like 95% of the population and it’s hard to get too. They save and then purchase. Anyway, this increase in savings puts more money in to their banks. This money in turn purchases more safe Japanese government debt. Why is the return so low? Because the government is issuing lots of debt to fund their expenses like QE and social security.

        Since the productive Japanese are all saving more, that does mean they spend less in the private sector. The savings that they put away gets spent by those who are retired. Retirees in general consume less than non-retirees or people raising families. Also as families have to save more they have fewer kids resulting in a demographic shift towards more elderly. What do the elderly need? More social security. It’s a cycle that feeds itself and moves toward an economy geared towards the less productive and lower consuming demographic. This also leads to their economy being less globally competitive and deterioration of the trade surplus, although I’d argue that a strong Yen has more to do with that.

        Is this government policy? Yes. Does it affect savings and the private sector? Absolutely.

        • What I don’t get is this. If the Japanese despise debt so, how come the government has so much of it. Is this a double standard on the part of the government??

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  10. Ellen, I have seen some of your writings before. I saw this story on another web site. First off, I want to thank you for sharing a differing perspective on banking and money. We are brothers and sisters in the fight for democratic money. I agree with many of your points but I think we can go much further than even you advocate.

    I do have to take small issue with some of the points in this story. I appreciate the spirit of your story and your intent. ie, That we CAN print money without inflation for the betterment of society. Not all of our money but much of it. But the situation in Japan isn’t quite as simple as it is portrayed in this story.

    I have been to Japan. I have close friends and relatives there. There is a lost decade. Actually lost two decades. It’s not lost comparative to the craziness here but wages, economic opportunity and employment are all very muted. A LOT of people live with their parents because many employment opportunities don’t either pay enough or are part-time. I’m not just talking about young people either.

    Additionally, there have been attempts at dismantling their social safety nets and the postal service by finance thugs in their nation and pressure from financial looters around the world. Some of those safety nets have been dismantled. While you won’t see the type of poverty that exists in the U.S., there are homeless people now in Japan. A few decades ago, that sight would have been unimaginable. And, savers are being punished by higher prices than you intimate. Many consumer prices are determined by imported goods and raw materials and they are skyrocketing there just as here.

    The situation you describe is that government essentially has access to society’s money without having to pay them a decent rate of return. And, they are able to do that because they have a monopoly on savings rates. I’m okay with a government monopoly on savings rates were this system designed differently. In such a system, a public banking system could pay savers at a higher rate than inflation while offering loans for lesser rates. But right now they are punishing savers in policy that promotes economic imperialism. In fact, I just got an email from a very successful friend of mine over there and she said her savings are eroding because interest isn’t keeping up with inflation. She was wondering if she should join the “house wife” speculators that is so common over there. ie, Loaning low interest yen to foreigners for a higher return that has become known as the yen carry trade; a massive Ponzi scheme.

    Japan’s economy is HIGHLY leveraged to globalization. And, so is their employment and their banking system. They will suffer disproportionately globalization collapses. And, it will. Then the example you use in this article won’t be quite model to copy. Although, in principle, your ideas are obviously very sound.

    Democratic banking and money are a first start. But, they won’t solve the economic crisis we are experiencing. There are many more factors that are involved. One is that productivity now only requires about 20% of our citizens to produce what we need. We have systemically-high unemployment because of this and democratic money is not going to fix that. We need to redefine what money is and why we work in order to resolve these systemic issues.

    • “One is that productivity now only requires about 20% of our citizens to produce what we need. We have systemically-high unemployment because of this and democratic money is not going to fix that.”

      Then we humans need a new final frontier. It is in the space. We, the humans, as species, have to “Re-Igniting A Can-Do Spirit Of Ambition”. This endeavor may help bootstrap us back into our natural condition… a species, nation and civilization that believes (again) in can-do ambition.

      Please learn more here:

      “In its Tuesday announcement, Space exploration company Planetary Resources claims a goal to “create a new industry and a new definition of ‘natural resources.’… adding trillions of dollars to the global GDP.”;

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