Here’s a pop quiz in Pacific economics: Which of the following nations has the highest amount of government debt? We’ll use debt as a percentage of economic output (Gross Domestic Product) as the way to measure this; this is sort of like you figuring your personal debt as a percentage of how much you earn per year. Here are your choices:
1) Mexico
2) Japan
3) Republic of the Philippines
4) Thailand
Before we get to the answer, I’ll get to this prediction: I think there are some days of reckoning coming in the debt world, and this might trigger big surprises in many related realms, including exchange rates. This has already happened in the U.S., of course, but there is more action on the way, and it may hit the west side of the Pacific. And, as you know, the Commonwealth’s tourism industry is tied into currency matters, since it affects the spending power of tourists. Thus far, the extremely strong Japanese yen (vs. the U.S. dollar) has been a favorable situation for those trying to sell to the Japanese.
That’s all well and good, but I don’t see Japan’s economy as invincible. I see it as vulnerable.
In fact, of the countries I listed at the start of this column, the one with the biggest debt is, yes, Japan. Japan’s debt is forecast to hit about 200 percent of GDP next year; this is the highest, by far, in the industrial world. Uncle Sam, which is committing economic suicide by debt, will weigh in at nearly 100 percent of GDP for public debt next year; every government agency from the local dog pound to the federal government seems to be issuing bonds (debt) these days.
In fact, looking at last year’s numbers, since I don’t have forecasts for all these places, Uncle Sam and Japan are listed with debt levels higher than Mexico (19 percent), the Philippines (56 percent), and Thailand (38 percent).
As for China, I don’t have any forecasts for their public debt, but last year is was just 16 percent of GDP, and I doubt it will wiggle much from there in the immediate future. So this gives us an interesting contrast in the world’s top three national economies: We’ve got rich Uncle Sam and rich Japan looting themselves into fiscal oblivion, while China has engaged in incredible fiscal discipline.
As for South Korea, which has long been my favorite economy (hey, some people have favorite football teams, so why can’t I have favorite economies?), last year it weighed in at 24.4 percent. That’s not as impressive as China, but, compared to the old-line industrial nations, it’s still impressive.
Right now, there is so much wacky money and so many slippery financial "bailout" schemes floating around, that financial markets are utterly un-tethered from reality. But once the smoke clears, it looks to me like China and South Korea have the best chances of having their feet on solid economic ground.
And, for this reason and others, I think that China and South Korea will, in the long run, have higher growth rates in outward bound tourists than Japan will. Of course, the big question is always when the long run will arrive, and nobody ever knows that.
Think about your own debt situation at home; if your income is steady, or rising, then you probably don’t worry about your debts a lot. But if you lose your job, or get your pay cut, then debt can keep you awake at night, and the long run fast arrives.
The same factor is going to apply on a global scale. Nobody is flashing red warning lights about Japanese and U.S. debt now, but I think they will, sooner or later. I’ll note that many types of tax revenues in both nations have plunged, which is a sign of underlying economic troubles.
I’m not giving investment advice, or anything close to it; I'm merely looking at some overall economic factors. But to be gentlemanly I will disclose that I speculate in yen and other currencies with my pipsqueak piggy bank. Hey, it keeps me out of the casinos and off the streets.
As for the Commonwealth, there’s not a whole lot it can do about this stuff, but those of you in the business realm might want to keep an eye on it. When it moves, it will probably move fast, and exchange rates, interest rates, loan terms, and the quality of your receivables might move faster than you anticipated.
Ed is a pilot, economist, and writer. He holds a degree in economics from UCLA and is a former U.S. naval officer. His column runs every Friday. Visit Ed at TropicalEd.com and SaipanBlog.com.
Home | Weather | Advertising | Classifieds | Subscription | Contact
Us | About Us | Archives
©2006 Saipan Tribune. All Rights Reserved
