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Japanese Credit Catastrophe

Amidst the continued chicken-little bleating about the U.S. Federal debt, I submit this:

Japan’s credit rating was cut for the first time in nine years by Standard & Poor’s as persistent deflation and political gridlock undermine efforts to reduce a 943 trillion yen ($11 trillion) debt burden.

The world’s most indebted nation is now ranked at AA-, the fourth-highest level, putting the country on a par with China, which likely passed Japan last year to become the second-largest economy. The government lacks a “coherent strategy” to address the nation’s debt, the rating company said in a statement.

The problem is more than the sheer sum of debt. It is also the absence of a plan to reduce that debt.

If When Congress raises the debt ceiling, they will have addressed only half the problem. The prospect of a voluntary default will be delayed, but the structural failings endure. They’re adding another layer of cement to a bridge with under-engineered and cracked supports.

The several attempts to address the structural problems are some combination of insignificant and too far in the future. You can’t add steel after the bridge has fallen in the river.

We are following Japan.

Even so, the faction of chicken littles who say a credit downgrade is its own catastrophe are calling for panic that need not come. After that latest downgrade, to the fourth level, what did the interest rate on Japan’s sovereign debt rise to?


One percentage point for being three levels down from the current U.S. level. Yes, one percent on 15 trillion dollars is a lot of money. But it isn’t going to crush the common man carrying a few grand on a credit card already at 15%.