Japan, with debt-to-GDP of about 230%, borrows money (mostly from its own people) at 1% interest. They are staring down the barrel of an imminent credit rating downgrade and talking about doubling their sales tax to avoid the downgrade. If their credit sours even just a smidge, they could go from 1% to 3% interest . . . and be totally unable to continue to carry their national debt. All their government revenue would be debt service and then some.
- If you earn $50k/year
- and owe $120k on your credit cards
- and suddenly they say you have to pay $53k/year on your credit cards
that’s a problem. The alternative is printing more money, which leads to printing more money, and then you end up with wheelbarrows full of cash and expiration dates on your trillion-dollar bills. Japan is, to understate things, in a problem.
But mock quietly, because they paved the way down which we are driving at breakneck speeds.