As the UK chancellor panics about missing his deficit reduction targets, we look at one of the mysteries of modern macro economics - Why Can Japan Borrow so Much?
Over the past two decades Japanese government debt has risen to 229% of GDP - and yet bond yields have continued to fall.
Source: Hoshi and Ito (2012).Spain, for example, might feel aggrieved that they face rapidly rising bond yields – even though their public sector debt (70% of GDP in 2011) is considerably lower that Japan. (UK is close to 70% of GDP too) There are quite a few reasons to explain this fall in Japanese bond yields, such as:
- Deflation in Japan - makes saving at low interest rates attractive.
- High level of domestic savings. 95% of government debt is held by domestic savers
- Central Bank intervention to buy bonds and maintain liquidity.
More on why Japan can borrow so much?
Current Account Deficits
The UK now has one of largest current account deficits in OECD. The German current account surplus is largest in world (overtaking China)
In a word, yes. It is a major problem for southern Europe, struggling to grow.
Outlook for Pound in 2013
The Pound has had a relatively good year in 2012 - a modest appreciation. But, this is a reflection of the underlying weakness in the rest of the world - and not strength in the UK.
The continued Euro crisis could mean the Pound continues to appreciate against the Euro. But, given size of UK current account deficit, overall the pound is starting to look overvalued.
Benefit Fraud and Tax EvasionJust to put into perspective:
- In 2010/11 – benefit fraud was estimated at £3.4bn – 2.2% of total benefit expenditure (£154bn)
- Tax evasion and tax avoidance estimated at £125bn
- Cost of tax avoidance and benefit fraud
Italian Economic Decline
Graph of the Week
In 2011, long-term net migration into UK was +215,000 – down from over +250,000 in 2010. It means that in the past five years, the UK population has been boosted by net migration of around 1,000,000.