US Government Debt Different - Finance Department - University of ...

92 Thoughts on Debt Sustainability: Supply and Demand Keynote RemarksSecond, Japan has a big pool of domestic savings. So, yes, check thisbox.Third, we would be hard pressed to call the Japanese banking system“healthy” or the “dominant wealth storage technology.” But whileJapanese banks have not been particularly strong, the Japanese haveat least had an efficient means of channeling savings into governmentborrowing. Since the banking crisis of the late 1990s, Japan Post hasbeen brutally efficient in converting savings into government financingas it became the preferred destination for household depositsand was effectively restricted to holding JGBs on the asset side of itsbalance sheet.Fourth, while low interest rates in Japan have not been good for savers,Japanese government policies have been reasonably friendly tocreditors – perhaps most noticeably in its policies toward its banksas Japan resisted the recommendations of foreign observers and criticsin the late 1990s to force banks to absorb losses and raise capitalmore quickly.Finally, while it does not appear that it did so intentionally, Japan hasexperienced outright deflation so the purchasing power of savingsstored in JGBs has been rising in real terms, even if nominal yieldsare extremely low.How does the U.S. Look? A Mixed Bag.Now let’s turn to the United States and see how we fare today oneach of these five different measures, which I will take up in a differentsequence.Creditor-friendly policies. Here, at best, I would suggest we get amixed score. The Fed is certainly trying to do what it can to be supportiveof credit intermediaries. But, for the most part, our Congressand our regulators are at something of a loss to decide whether theywant to beat up the bankers and make it harder and more expensiveto lend money or whether they want to make it easier to lend money.I fear the Fed’s efforts are being – and will be – overwhelmed by theforces that wish to punish the lenders for their bad behavior.