U.S. Has a Debt Issue, Compounding is Japan's Debt Issue

Debt Presses Europe, Now U.S., Next Japan

Obvious new dynamics are occurring in highly developed countries. Debt issues are progressing beyond capacity for easy resolution and grow to become a mirror that fiscal policy leaders do not want to see. Also obvious is progression of this dynamic moving from Europe into U.S. Next will be Japan.

Japan is unique in that most of their debt is domestically financed, as opposed to foreign investment. But, for Japan, a shrinking global economy bodes that their ability to domestically finance debt will also shrink congruent with slowed global growth.

On November 8, Japan's finance ministry reported a current account deficit for September. First time in 30 years. Japan's terms of trade (a ratio of export prices against import prices) has been in deterioration as value from exports wane against costs of imports. From 1960 through 2012, terms of trade for Japan have averaged 174.56. In August, 2012, Bank of Japan said the number stood at 90.50.

Based on more concurrent indicators, terms of trade numbers aren't improving for Japan.

Where Europe has managed to kick a can down a blind road, chances for other countries, namely the U.S. and longer term Japan, to perform in like manner diminish. Perhaps significantly. All due to progressing global weakness.

Hope of economic growth increasing government revenue to offset debt not only is looking bleak, but government debt is too large for realistic growth rates creating a meaningful offset on debt.  Austerity can't be avoided. Still, austerity's reach needs to be balanced, to avoid strangling growth. Historical analogies don’t really exist, certainly in an integrated global economy.

What is known, U.S. Congress needs to look more adult and less childish. Winning political party battles on scorched earth efforts, leaves a scorched America.