The main point of contention around the $50 billion is how exactly the budget will be financed. Japan's debt already accounts for around 200 percent of its GDP. The Japanese government has said that among other small adjustments, it will cut back on overseas aid to pay for the budget, re-instate tolls on certain stretches of road, and increase the country's sales tax.
Those moves will fund this $50 billion emergency budget, but Japan estimates overall reconstruction cost estimates are closer to $300 billion. How will this huge project be financed? Due to a rising debt, issuing government bonds was ruled out as a way to finance the current emergency budget, but it is likely that the government will have to resort to issuing bonds to pay for the second budget.
5 comments:
It will be very interesting to see how Japan obtains the funds necessary in order to support its devastated economy. Japan is going to experience a bit more difficulty than normal due to the fact that they claim they are not going to issue anymore government bonds, which is generally one of the easiest ways to finance an emergency budget similar to the one that Japan is currently attempting to finance.
Interesting article! It is unfortunate to see one of the largest economies in the world being devastated by nature.
"On Thursday, the Organisation for Economic Co-operation and Development (OECD) said that Japan should move to increase its sales tax by as much as four times its current rate, in order to deal with the deficit that it will incur as a result of spending on reconstruction."
I disagree with OECD regarding the increase of sales tax 4x its current state. It would hurt the consumers and at the same time, it would also hurt the economy as well. Although, I am concerned about Japan's growing debt problem, especially to the fact that the public debt is twice its GDP. It would be interesting to see how that pans out because maybe the United States would reach to that point of public debt and learn the lesson from Japan.
At this stage, its economy is badly hurt by the tsunami and nuclear incidence. Thus, it will requires cash to rebuild its country and have to start collect its money from lending to other countries. The following effect will be some countries have to pay back their debt to Japan. With some good performing economy, paying the debt is not a big deal. However, to countries that are not doing well, like the US for example, paying back the debt is really a painful action they must do to meet their obligation
The unpredictable tsunami has been devastating for the Japanese economy. Unortunately this will directly affect the United States because Japan will have to collect other countries debt, and the United States is already struggling with a budget deficit.
Like the article said, $50 billion is a conservative amount to get rebuilding on its way, but is not nearly enough to cover the vast expenses. Not to mention the health and other unforeseeable expenses that will be assumed in the years to come.
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