If interest rates were to rise by a mere 2%, it would take anywhere from 80 to 100% of all Japanese tax
revenues simply to pay the interest on the Godzillaesque Japanese debt.
If you read Mauldin, you should do so over a period of time, to get a sense of his biases, which are strong.
However, his views are consistent with my emphasis on the notion that governments and banks are subject to multiple equilibria, and that when leverage is high, the movement from one equilibrium to another can be sudden and catastrophic.
Though 44% of that is owned by itself, so even that would be doable.
This is an issue of debate.
When you say “itself”, I take it you mean “Japanese citizens”. What would that matter, though?
Either way the government ends up without enough tax revenue to pay for its own interest. It would be catastrophic to just refuse to pay back their bonds. It would be only slightly less bad to sieze property and use it to pay off the debts.
The least bad option is to raise taxes, but taxes can only be raised so far, and they certainly dampen the economy. Moreover, at the scale we’re talking about, it’s hard to see how taxes could be raised quickly enough. There is some delay involved….
There’s a certain blogger somewhere saying “never reason from a price change.”
How short term is Japanese debt? Is most of their debt short term that they are rolling over or long term? The link didn’t say; I’m not sure how much I believe these numbers. But I can believe it will be bad, even if higher interest rates derive from higher economic growth.