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WHY THE JAPANESE GOVERNMENT CAN AFFORD TO REBUILD: IT OWNS THE LARGEST DEPOSITORY BANK IN THE WORLD

Skeptics asked how a country with a national debt that was over 200% of GDP could be "strong and wealthy." In a CIA Factbook list of debt to GDP ratios of 132 countries in 2010, Japan was at the top of the list at 226%, passing up even Zimbabwe, ringing in at 149%. Greece and Iceland were fifth and sixth, at 144% and 124%. Yet Japan's credit rating was still AA, while Greece and Iceland were in the BBB category. How has Japan managed to retain not only its credit rating but its status as the second or third largest economy in the world, while carrying that whopping debt load?

The answer may be that the Japanese government has a captive funding source: it owns the world's largest depository bank. [...] Japan has remained impervious to the speculative attacks that have crippled countries such as Greece and Iceland because it has not fallen into the trap of dependency on foreign financing.

[...] In a 2007 reorganization, the postal savings division was separated from the post office's other arms, turning Japan Post into a proper bank. According to an October 2007 article in The Economist:

The newly created Japan Post Bank will be free to concentrate on banking, and its new status will enable it to diversify into fresh areas of business such as mortgage lending and credit cards. To some degree, this diversification will also be forced upon the new bank. Some of the special treatment afforded to its predecessor will be revoked, obliging Japan Post Bank to invest more adventurously in order to retain depositors-and, ultimately, to attract investors once it lists on the stock market.

That was the plan, and Japan Post has been investing more adventurously; but it hasn't yet given up its government privileges. New Financial Services Minister Shizuka Kamei has put a brake on the privatization process, and the bank's shares have not been sold. Meanwhile, the consolidated Post Bank has grown to enormous size, passing up Citigroup as the world's largest financial institution; and it has been branching into new areas, alarming competitors. A March 2007 article in USA Today warned, "The government-nurtured colossus could leverage its size to crush rivals, foreign and domestic."

Before the March 2011 tsunami, that is what it appeared to be doing. But now there is talk of reverting to the neoliberal model, selling off public assets to find the funds to rebuild. Christian Caryl commented in a March 19 article in Foreign Affairs, published by the Council on Foreign Relations:

As horrible as it is, the devastation of the earthquake presents Japan and its political class with the chance to push through the many reforms that the DPJ [Democratic Party of Japan] has long promised and the country so desperately needs.

In other words, a chance for investors to finally get their hands on Japan's prized publicly-owned bank, and the massive deposit base that has so far protected the economy from the attacks of foreign financial predators.

The Japanese government can afford its enormous debt because the interest it pays is extremely low. For the private economy, public debt IS money. A large public debt owed to the Japanese people means Japanese industries have the money to rebuild. But if Japan Post is sold off to private investors, interest rates are liable to rise, plunging the government into the debt trap it has so far largely escaped.


by das monde on Fri Apr 1st, 2011 at 07:06:39 AM EST

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