Japanese Debt Crisis to Mirror that of Greece?

So, what is going on in Japan?

The government has gotten by for the last 20 years by borrowing from its own citizens. It now has the biggest debt-to-GDP ratio in the world.

As the private sector de-leveraged the public sector borrowed and spent – the same thing that is happening in America today. And maybe Richard Koo is right. Maybe this did prevent a deeper recession in Japan. Unemployment never rose over 5%. And the economy never actually suffered sustained negative growth levels.

But so what? Investors still lost 3/4 of their money. And now Japan’s prime minister has a warning. All those savers who put their money in Japanese government bonds for the last 20 years may soon wish they had bought gold.

From Yahoo! Finance:

Japan PM warns of Greece-like debt crisis

Japan’s new prime minister warned Friday that his country could face a financial mess like the one that has crippled Greece if it did not deal urgently with its swelling national debt.

While Japan is on firmer financial footing than Greece because most of its debt is held domestically, Prime Minister Naoto Kan’s blunt talk appeared designed to push forward his agenda, which may involve raising taxes.

Speaking in his first address to Parliament after taking office Tuesday, Kan said Japan, the world’s second-largest economy, cannot continue to let government debt swell while state finances are under pressure from an aging and declining population.

“It is difficult to sustain a policy that relies too heavily on issuing debt. As we have seen with the financial confusion in the European community stemming from Greece, our finances could collapse if trust in national bonds is lost and growing national debt is left alone,” he said.

Japan has the largest public debt among industrialized nations at 218.6 percent of its gross domestic product in 2009, according to the International Monetary Fund.

Bill Bonner
for The Daily Reckoning