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Comment by ppk | Hacker News Reader

I doubt it, take a look at this, http://www.wolframalpha.com/input/?i=japan+public+debt change the time scale to 10 years, it looks pretty sustainable to me... It's close to the lowest it has been in 10 years.

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Wolfram Alpha displays the debt in your local currency (SEK to me). Which currency did it show to you?

Look at this video and tell me how that is sustainable: http://www.youtube.com/watch?v=-quUyId2WZ0#t=0m13s

If I citizen of a country buys that country's bonds then a portion of their interest is collected back as capital gains. Thus the country actually pays (interest rate * (1- capital gains rate) - inflation rate). So because the overwhelming majority of Japan's debt is owned by it's own citizens and it's in it's own currency they can easily drive their loan servicing costs below zero at fairly modest inflation rates. They can also achieve the same effect by slightly bumping the capital gains tax which is currently set at 15%.

Great arguments! I still don't think that paying 50% of your tax revenues in interest rate is sustainable (especially not when the interest rates are as low as they already are). However, your point about capital gains combined with high level of domestic creditors certainly changes the math.

"they can easily drive their loan servicing costs below zero at fairly modest inflation rates"

Why will Japanese people buy government bonds that return a negative interest? Stuffing cash in a mattress seems like a better option at that point.

People where buying billions of dollars of short term treasury bonds with a negative interest rate recently, because they are safer than mattress's. However, I was talking about real costs after inflation ex: Inflation = 2%, government bond's yield 2.5% capital gains = 25%, mattress yield = 0%. (1 + .025 * .75)/1.02 = 99.88% vs (1/1.02) = 98.04%

The only number the government does not control is the interest rate they need to pay.

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