Japan's Economy Part II -Is Their Debt Really That Bad?

With the understanding that deflation is not necessarily a horrible force but a needed and natural force that keeps the economy in line, we can now move on to debunking the common view of government debt:

The Japanese economy is much like the United State's so, once again, I will refer to our economy instead of Japan’s to analyze the economic style. 

In the US economy the consumer strengthens the business which strengthens the government: 

*If consumers do not have money to spend, then businesses do not get paid; If businesses do not get paid, then they weaken; Weak businesses lead to a weak government. 

*If businesses become weak and do not have money to pay employees, then the consumer will no longer have money to spend; The consumer becomes weak and this leads to a weak government. 

*The strength of the government relies completely on the flow of cash between businesses and consumers. 

In our current (US) economy the consumer is weak, businesses are weak, and the government is weak. This weakness stems directly from debt (the result of past unaffordable purchases with credit). -Our economy has fallen into what seems to be an unbreakable cycle of debt because businesses and individuals do not have enough money to boost the economy. 

What if the government could boost the economy with their money though? Wait, I thought the government has hit a debt wall too. Where would they get the money from? Won’t the dollar default if the government lends too much?

The common belief that the US government risks defaulting on its currency as it lends out more money is a myth. This belief only held true when the US government used a fixed currency, like during The Great Depression when the run on banks occurred. At the time, currency was fixed and paper money was backed by gold. The run exposed banks that were lending out more paper representations of gold then actual gold stored in their reserves, resulting in many individuals losing money. That was under a FIXED CURRENCY though, a run on the banks is no longer a concern because the US now uses a fiat currency. This means that the amount of paper money in circulation is no longer limited to a fixed amount. 

The value of a single dollar, under fiat currency, does not correspond with a concrete substance -like fixed currency does. It corresponds directly with the perceived worth of the US economy divided by the total dollars in circulation. An economies perceived worth is how much the country’s services and products are worth to other countries, not the strength of their currency against other currencies (US economic value = US currency value = US perceived worth = how much other countries need the US). For example, a country is not going to stop paying for a service that the US provides best just because one hundred paper representatives of their currency equals a thousand paper representatives of ours. This means that the amount of dollar bills in circulation does not effect the value of US currency as a whole; in other words, the US can never default on its currency through debt to its economy because it can always just create more money. 

If the US government cannot default on its currency through debt, it can safely relieve the debts of our businesses and consumers by taking in debt. This can be done by reducing taxes. (The extra money saved from not paying the normal taxed amount can go towards paying off debt.) 

The cleansing of business and consumer debt will ultimately strengthen the economy. Obviously, this will exponentially raise government debt but as business and consumer debt diminishes the government will slowly move into good standing (government strength as a direct reflection of its businesses’ and consumers’ strength). The only “downside” to this would be mass deflation, which, as explained in part I, is actually not a “downside” at all, but a part of the natural flow of a healthy economy.

This is exactly what Japan’s government did and is still doing to fix its economy. It reduced tax intake so that its economy can strengthen. Now, the common belief is that Japan is living miserably but because they are moving away from unhealthy amounts of inflation they benefit from a lower crime rate and a lower unemployment rate then the US -among other things. 

Lower unemployment rate? ..Here’s a graph for you:

Now, the US criticizes Japan for its actions. Is that fair? What is really going on here? 

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A

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