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It's "literally impossible" only in a very literal sense of the word. In other words, yes, Japan can indeed get out of a debt of 17 gazillion yen simply by pri

It's "literally impossible" only in a very literal sense of the word. In other words, yes, Japan can indeed get out of a debt of 17 gazillion yen simply by printing 17 gazillion yen, but I'm not sure flooding the money supply like this would cause much less damage than an actual default (=the Japanese government telling its bondholders that it's not going to repay them).

xorcist 12y ago
You're not sure financial institutions would prefer being paid something rather than nothing. Could you please elaborate?
- deciplex 12y ago
  I'd imagine, it's that the damage caused by massive inflation does not start and stop at what financial institutions would prefer. (For that matter, financial institutions would probably prefer a haircut on their Japanese bond holdings, over the 3rd largest economy going up in smoke.)
- nandemo 12y ago
  At a high enough rate (e.g. war time Germany, 1980s Brazil, Zimbabwe), hyperinflation will turn your nominal returns into next-to-zero real returns. Conversely, default doesn't have to be "we won't pay nothing". A country can partially default.
AmirS2 12y ago
>It's "literally impossible" only in a very literal sense of the word. The literal sense of the word "literally"? Yes, I think that's exactly what was meant! Has the word "literal" been so badly abused across the internet (true) that you thought a correct use of the word needed clarification? Or is contemplating the fact that Japan's govt. debts are entirely in its own currency, which can be issued at will with no constraint from the financial markets, so shocking and nonsensical to orthodox thinking that you thought that the original statement couldn't possibly have meant what it said?
nhaehnle 12y ago
Japanese government creditors as a whole will never want to get rid of Japanese bonds in the kind of mass-selloff that you're implying unless the Japanese government does tell its bondholders that they're not going to be repaid. The reason is simple: individual holders of Japanese government bond may want to get out of Japanese government debt. These individuals then hold Yen in a bank account (if they're regular individuals or institution) or in a central bank account (if they're banks). What happens with those Yen? Maybe they'll buy some other bonds, or sell those Yen for another currency, or something else entirely. But no matter what they do, those Yen will still be around. It is impossible for them to disappear, unless somebody buys Japanese government bonds. So those Yen might circle around a bit in the financial system, but at some point, they will end up with somebody who sold some asset and does not want to buy anything else. This somebody now has a choice of keeping Yen (which guarantee no loss of principal but have zero nominal return) or of buying government bonds (which also guarantee no loss of principal and which have a - however small - positive nominal return). At this point, buying the government bonds is clearly the superior option. This hot potato effect of money is why there will never be the need to print gazillions of Yen to get rid of the debt. I would point out that one might say that your statement is based on a fundamental misunderstanding anyway: Whether you hold Japanese government bonds or Yen, both are forms of government debt! The only difference between them is in maturity and interest rates.

xorcist 12y ago

You're not sure financial institutions would prefer being paid something rather than nothing. Could you please elaborate?

deciplex 12y ago
I'd imagine, it's that the damage caused by massive inflation does not start and stop at what financial institutions would prefer. (For that matter, financial institutions would probably prefer a haircut on their Japanese bond holdings, over the 3rd largest economy going up in smoke.)
nandemo 12y ago
At a high enough rate (e.g. war time Germany, 1980s Brazil, Zimbabwe), hyperinflation will turn your nominal returns into next-to-zero real returns. Conversely, default doesn't have to be "we won't pay nothing". A country can partially default.

AmirS2 12y ago

>It's "literally impossible" only in a very literal sense of the word. The literal sense of the word "literally"? Yes, I think that's exactly what was meant! Has the word "literal" been so badly abused across the internet (true) that you thought a correct use of the word needed clarification? Or is contemplating the fact that Japan's govt. debts are entirely in its own currency, which can be issued at will with no constraint from the financial markets, so shocking and nonsensical to orthodox thinking that you thought that the original statement couldn't possibly have meant what it said?

nhaehnle 12y ago

Japanese government creditors as a whole will never want to get rid of Japanese bonds in the kind of mass-selloff that you're implying unless the Japanese government does tell its bondholders that they're not going to be repaid. The reason is simple: individual holders of Japanese government bond may want to get out of Japanese government debt. These individuals then hold Yen in a bank account (if they're regular individuals or institution) or in a central bank account (if they're banks). What happens with those Yen? Maybe they'll buy some other bonds, or sell those Yen for another currency, or something else entirely. But no matter what they do, those Yen will still be around. It is impossible for them to disappear, unless somebody buys Japanese government bonds. So those Yen might circle around a bit in the financial system, but at some point, they will end up with somebody who sold some asset and does not want to buy anything else. This somebody now has a choice of keeping Yen (which guarantee no loss of principal but have zero nominal return) or of buying government bonds (which also guarantee no loss of principal and which have a - however small - positive nominal return). At this point, buying the government bonds is clearly the superior option. This hot potato effect of money is why there will never be the need to print gazillions of Yen to get rid of the debt. I would point out that one might say that your statement is based on a fundamental misunderstanding anyway: Whether you hold Japanese government bonds or Yen, both are forms of government debt! The only difference between them is in maturity and interest rates.