Tuesday, 15 March 2011

Govt deficts do not equal country deficits

The BBC reports:

1450: BBC's Mark Gregory has been looking at the economic impact of the quake. Early estimates have put the cost at £112bn ($180bn), equal to 3% of national output. "That's a large burden for a nation that even before last week's disaster had the highest public debt - 200% of GDP - of any advanced economy," he says.

Well not really. It does mean rebuilding will be quite a burden for the Japanese government, which is heavily indebted. But almost all of the debt is owned by Japanese households, and then some - the net external assets of Japan are something like $3 trillion, about 55% of Japan's GDP.

So the amount to spend on reconstruction should not really be seen in the context of the government's deficit, but the assets of the country, its GDP and also its claim on foreigners. All of which are huge.