This weekend we predicted that 2011 would resemble 2010 in one important way: Those folks betting on a default or hyperinflationary event in Japan would be proven wrong once again despite all the hype about the country’s fiscal position.
In his post fanning fears over Japan’s “fiscal disaster” Reuters’ Felix Salmon says something very interesting and important: “The situation in Japan is particularly depressing because the country has no major ethnic or political rifts.“
Felix’s point is that if Japan with no major rifts can’t do anything about its fiscal situation, then it’s really hard to fathom the US, with all kinds of rifts (ideological, ethnic, etc.) getting anything done.
But in fact the exact opposite is true, and that’s what’s scary!
Consider that in the US, we’ve already had a debt commission that’s set out a pretty doable roadmap for the reducing the debt. That’s more than Japan has done.
But beyond that, the large debt is now being used as a political weapon — by one party — to violently alter US spending, while putting the credit rating of the US in jeopardy.
So what’s the lesson of Japan? If you’re a harmonious homogeneous society like Japan, you can handle a large deficit without committing hara kiri. If you’re divided, then the huge number becomes a major problem and a threat to the ongoing health of the economy.