Japan's Debt Problem Visualized - Not Good

[huiii]

MoHasanie said:

Weedlab said:

The thing to watch though is the relationship between both rates - a rise in inflation is also accompanied by a rise in interest rates, and I bet people will keep their eyes on the interest rate when you consider Japan's debt levels. B

I thought a rise in interest rates leads to lower inflation since people can borrow less money and so consumers have less money to spend so inflation decreases? 

The effect you describe is monetary politics. If there is inflation the central banks rais the intrest to make money more expensive and lessen the amount of money in the maket. less money = less inflation. And the other way around, Japan is trying to increase inflation so they print money (by trying to sell more thorugh low interest rates).

What Weedlab is saying is that if the inflation is high the money looses value faster and people are less likely to lend money, so the intrest rates have to cover the inflation for people to keep lending moneyv .

It's two diferent things. Inflation is good for borowing but bad for lending. 

 

OT: If people felt reluctant to buy japanese bonds couldn't they just make the central bank buy them and wait for the inflation to eat away the debt? It might be bad since most of the japanese bonds are held domesticly but isn't this what the EU is doing and i think the US (i dont really know) as well?