Japanese government has negative net asset value

Bloomberg reports:

The Japanese government’s net assets in 2009 may have fallen below zero for the first time, the Nikkei newspaper reported, citing an unidentified government official. The result, which includes the central and regional governments, may add to pressure for the government to reduce bond sales, the paper said. Net assets of the central government alone were negative 300 trillion yen ($3.3 trillion) in 2008, the Nikkei said.

How can we point to the Japanese credit crisis solution as a model when the Japanese government is essentially bankrupt? Yes I know they are not really bankrupt because of the power of taxation. And I know Richard Koo gives a plausible defense of fiscal stimulus via his balance sheet recession theory. But I have argued the focus in Japan has been on maintaining the status quo which means overcapacity and malinvestment. The result is a huge public sector debt burden and now negative government net asset value.

Source

Japan’s Net Asset Decline May Restrict Bond Sales, Nikkei Says – Bloomberg.com

17 Comments
  1. hbl says

    “How can we point to the Japanese credit crisis solution as a model when the Japanese government is essentially bankrupt?”

    From a Modern Monetary Theory perspective (one you sometimes walk readers through), all this means is that the cumulative net financial wealth that the Japanese government has generated in the hands of the private sector as a result of supporting aggregate demand just so happens to exceed the TANGIBLE assets on the books of the government. Net FINANCIAL assets of the government are by definition always negative. So this is the same type of news as the Dow crossing 10K… symbolic but irrelevant to macroeconomic dynamics. (You do suggest this same conclusion with the tax comment).

    1. Marshall Auerback says

      That’s correct. And for all of the talk about Japan’s “national
      insolvency”, I still don’t see their social security cheques (or whatever is the
      Japanese equivalent) being bounced. The fact that debt issuance exceeds tax
      revenues only tells me that the economy remains in dire straits, not that
      the country is bankrupt, since the latter implies a shortage of yen, which can
      never been the case in a country which has retained its sovereign ability
      to create currency.

      In a message dated 2/22/2010 10:28:35 Mountain Standard Time,
      writes:

      ======

      1. hbl says

        Marshall, do you happen to know if the national accounts balance sheet data for Japan past 2007 is published anywhere? I see it mentioned various places but the newest data on the CAO site seems to be 2007 still (when you actually click through, despite saying 2009 on the first page). Coincidentally just recently I started making some graphs of net wealth in Japan and the US and would love to include the latest data.

        1. Edward Harrison says

          I asked Marshall if he could write something up on Koo’s latest views. If he has any of the national accounts data, I hope he publishes it then.

          1. Marshall Auerback says

            The only thing I’ve seen from Koo recently was an interview he conducted with Nomura Research Institute about 6 weeks ago. Koo was asked how GDP can continue to grow if the private sector are taking “massive hits to their wealth”, which is also a common theme among the debt-deflationists – that we have to take our medicine now and excroriate the debt and allow industry to suffer widespread failure as a consquence. Some people even believe you need mass unemployment to assist in this debt elimination process. Koo rejects this “Austrian” line of thinking: … Japan’s GDP grew even after the massive loss of wealth it suffered when its real estate bubble burst … That happened even though the private sector was rushing to pay down debt all during that time. And the reason is that the government’s fiscal spending kept incomes growing enough that GDP never fell below its bubble peak, in either nominal or real terms … And this was over a period that commercial real estate prices fell by 87 per cent from their 1990 peak – and the total wealth effect amounted to “the largest loss of wealth in human history, in peace time.” GDP kept growing because the Japanese government was “highly liberal with public spending”. Moreover, he rejects the Austrian arguments in this regard (that is, a sharp recession to clear the decks and the debt) because it would be extremely costly in human and economic terms: … that experiment was tried from 1929 to 1933 and almost half of U.S. GDP disappeared. Unemployment rate went to 25% and bringing the economy back to full employment literally too the Japanese attack on Pearl Harbour. I don’t think that’s the way we want the world to come back to life. People who argue that zombie companies should be allow to go to hell … don’t realise that, first of all, zombie companies with no cash flow cannot pay down debt, and if they cannot pay down debt, they are actually not the source of the problem … Balance sheet recessions are caused by good companies with good cash flow paying down debt. The problem Koo notes again is that while the first wave of Japanese fiscal injection instantly worked (building roads and bridges) they considered it a temporary measure only – unfortunately, the Obama people view deficit spending in the same way. Larry Summers talks about deficit spending being “targeted, timely and TEMPORARY” (my emphasis on the last). Koo concludes that: … what my work shows is that the total additional, or cyclical, deficit that the government created to sustain GDP during Japan’s balance sheet recession … took the fiscal deficit to about 63% of GDP. But I would argue that this 63% of GDP deficit represents the most successful fiscal stimulus in history. His computation is based on the fact that GDP would have dived (perhaps by more than 46 per cent) if the stimulus was not provided. To be conservative, however, he assumes that GDP returns to its pre-bubble level of 1985 with no stimulus. There’s also some good charts that have been reproduced from Koo’s work here: _http://bilbo.economicoutlook.net/blog/?p=5345_ (http://bilbo.economicoutlook.net/blog/?p=5345) In a message dated 2/22/2010 11:23:43 Mountain Standard Time, writes: ======Edward Harrison <edh@creditwritedowns.com> wrote, in response to hbl:I asked Marshall if he could write something up on Koo’s latest views. If he has any of the national accounts data, I hope he publishes it then.

        2. Marshall Auerback says

          Good question. I shall look into it.

          In a message dated 2/22/2010 11:18:45 Mountain Standard Time,
          writes:

          ======

          hbl wrote, in response to Marshall
          Auerback:

          Marshall, do you happen to know if the national accounts balance sheet
          data for Japan past 2007 is published anywhere? I see it mentioned various
          places but the newest data on the CAO site seems to be 2007 still (when you
          actually click through, despite saying 2009 on the first page).
          Coincidentally just recently I started making some graphs of net wealth in Japan and the
          US and would love to include the latest data.

          Site URL: http://www.thoughtofferings.com/
          IP address: 173.49.130.157
          Link to comment: http://disq.us/clt0n

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        3. Marshall Auerback says

          http://www.esri.cao.go.jp/en/sna/menu.html

          and http://www.oecd.org/mei

          In a message dated 2/22/2010 11:18:45 Mountain Standard Time,
          writes:

          ======

          hbl wrote, in response to Marshall
          Auerback:

          Marshall, do you happen to know if the national accounts balance sheet
          data for Japan past 2007 is published anywhere? I see it mentioned various
          places but the newest data on the CAO site seems to be 2007 still (when you
          actually click through, despite saying 2009 on the first page).
          Coincidentally just recently I started making some graphs of net wealth in Japan and the
          US and would love to include the latest data.

          Site URL: http://www.thoughtofferings.com/
          IP address: 173.49.130.157
          Link to comment: http://disq.us/clt0n

          —–
          Options: You can moderate through email. Respond in the body with
          “Delete”. Respond in the body to post a reply comment.

          Or use the moderate panel: http://disqus.com/comments/moderate/
          To turn off notifications, go to: http://disqus.com/account/notifications/

          1. Edward Harrison says

            The second link is bad/

      2. hbl says

        Oddly the comment system is not letting me reply to your specific comment below.

        Thanks for the two links. The first is the same CAO one I already linked and have used before that is labelled 2009 but only includes through 2007 in reality. The second one, the OECD site (corrected link here), will be helpful but only seems to include balance sheets of general government and households, i.e., it is missing a number of sectors that are available on the CAO site. Perhaps there is a bigger lag in publishing the other sectors.

    2. Edward Harrison says

      yes, despite my talk of bankruptcy (as in liabilities exceeding assets), the power to tax and issue a sovereign currency means the government cannot voluntarily go bankrupt.

      In any event, the concentration on exports will mean continued overcapacity and that the weak domestic demand can continue for some time to come.

      Marshall, what is Koo saying about next steps for Japan?

  2. Anonymous says

    Your right, it is the malinvestment and over spending. This has been choking Japan since their mess started. I’m sure Richard Koo is a “book smart” person, but he’s an idiot when it comes to solving an over spending and debt problem.

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