Yanking the Bank of Japan’s Chain

from Actingman:

Mathematical Certainties

Based on the simple reflection that arithmetic is more than just an abstraction, we offer a modest observation.  The social safety nets of industrialized economies, including the United States, have frayed at the edges.  Soon the safety net’s fabric will snap. This recognition is not an opinion.  Rather, it’s a matter of basic arithmetic.  The economy cannot sustain the government obligations that have been piled up upon it over the last 70 years.

 

Growing wrinkle coefficient… as the global population increasingly ages, the “pay-as-you-go” social security and pension Ponzi schemes of developed welfare states are inexorably careening toward insolvency. [PT]

 

 

In other words, the post-World War II boom is nearly over and the bills are coming due.  What’s more, greater and greater amounts of future growth are already claimed by existing debt obligations.  This, in turn, inhibits that growth from making its way into the larger economy, thus limiting future economic growth.

Perhaps this is why mature economies are finding it near impossible to attain 3 percent GDP growth.  In fact, the last time U.S. GDP grew by 3 percent or more for a calendar year was 2005, about 12 years ago.  Unfortunately, it doesn’t look like U.S. GDP growth will ramp up any time soon.

Over the last 12 years, GDP growth in the European Union has been equally lethargic.  However, Japan takes the cake.  GDP growth in the Land of the Rising Sun has been stuck in a quagmire for 25 years.

 

US annual GDP growth rates since 1949 – average output growth has consistently declined, while both public and private debt exploded into the blue yonder. [PT] – click to enlarge.

 

Fighting the Forces of Arithmetic

Aside from a generation of GDP growth stagnation, Japan also has another important distinction.  The country is serving as the canary in the coal mine for what happens to an economy that has a rapidly aging population, burdensome debt obligations and stagnating growth.

Specifically, Japan’s disagreeable demographic trend generally leads the trend in the European Union by about 5 years and that of the United States by roughly 9 years.  Japan’s worrisome debt and growth trends lead those in the European Union and the United States by about 15 years, give or take.  The simple arithmetic Japan faces, as reported by the Daily Times, includes: