<p>I don't think you can sensibly discuss this without including two additional factors:</p>

<ul>
<li>what is the prevailing interest rate?</li>
<li>is the debt in local or foreign currency?</li>
</ul>

<p>The first affects the cost of repayments. Interest rates are at record lows in the developed world. How much money is it reasonable to borrow at 0%? What about <a href="http://www.bbc.co.uk/news/business-35436187">-0.1%</a>, is there even a limit that could be sensibly applied to such a negative rate, when the more you borrow the more you will be paid to borrow it?</p>

<p>Secondly, debts in local currency, especially hard currencies like the dollar, yen and euro, are much less risky than debts in non-local currency which can be affected by exchange rate shifts.</p>

<p>Further, like with individuals, it's not sensible to assign a single level beyond which you should not go. It should be more of a process of credit scoring. The 'credit score' for governments is effectively the bond yield. During the European crisis of 2008+, bond yields went high. Today the Japanese bond yield is .. negative. Indicating that it's thought safer to lend your money to Japan than to hang on to it as cash or keep it anywhere else.</p>

<p>Where are the low rates coming from? People and organizations that are extremely wealthy have a problem. The world has run out of good-yielding investments and safe, high-interest debtors. There is literally no safer way of keeping a hundred billion dollars than lending it to a developed world government. Even if you have to pay them for a privilege. It's safer than keeping it in a bank that might go bust.</p>

CC BY-SA 3.0
2016-05-01T20:00:12.080Z
2016-05-01T20:00:12.080Z
pjc50
<p>The key point is not the Debt/GDP ratio by itself but the sustainability of the debt over time. 
The government borrows money from the market and uses taxes to repay it, as households borrow money from banks and use their income to repay it. 
Before moving on, let's look at a simple debt accumulation equation
<a href="https://i.sstatic.net/8LdcY.png" rel="nofollow noreferrer"><img src="https://i.sstatic.net/8LdcY.png" alt="Inter temporal debt dynamics"></a></p>

<p>where b(t+1) is the debt/GDP ratio in period t+1. It depends in s, that is the primary surplus of the government, r, that is the real interest rate, and gamma, the growth rate of the economy. In Japan the debt/GDP ratio is high but they also have very low real interest rates and a primary surplus which allow them to repay the debt. On the contrary Greece, accumulated to much debt enjoying the low interest rates granted by the Euro. When the crisis hit, markets lost confidence on Greece's ability to pay back. Thus they sell off their bonds. Interest rates sky-rocketed and because of the economic crisis the growth felt down. Moreover, the government had, and still have, many problems in collecting taxes. Therefore, Greek debt is more unstable and dangerous than the Japanese one, even if it is lower both in relative and absolute terms.
In a nutshell, default arises when you run out of money for repaying interests regardless of the amount of the outstanding debt. 
Nonetheless, Japan is in trouble. The more the debt growths, the more budget resources will be allocated to repay interests. Hence, forcing the government either to increase taxes or reduce spending in other areas, something that is politically difficult. Anyway I suggest you to watch this video, it gives a roughly idea of what is going on there
<a href="https://www.youtube.com/watch?v=Njp8bKpi-vg" rel="nofollow noreferrer">Japan's Debt Problem Visualized</a></p>

<p>Regarding your question on domestic vs international creditors, they are important when the government wants to decide whether to default or not. The more debt is owned by resident the more costly is going to be to default as your citizens would bare the loss. And, in any case, the government has to pay back interest regardless of the nationality of the creditor. </p>

CC BY-SA 3.0
2016-05-01T20:22:28.043Z
2016-05-01T20:22:28.043Z
Bux
<p>There is a key factor determining a country's likelihood of default which has only become a research topic in the last decade or two: The quality of its government, in particular the prevalence of corruption. (Interestingly, the type of government -- democracy, autocracy -- is comparatively unimportant.)</p>

<p>Greece has a poor political system; cronyism and corruption are wide-spread. Japan's government, by contrast, works very well (although certainly conflicts of interest for example concerning the regulation of nuclear industry have come to light). So far Japan's creditors trust the country to repay; Greece's are not so sure.</p>

CC BY-SA 3.0
2016-05-02T10:03:15.477Z
2016-05-02T10:03:15.477Z
Peter - Reinstate Monica
<p>I think a lot of people here gave some really good answers, including the person who got some downvotes.</p>

<p>240% debt-to-GDP ratio is based on a mathematical calculation. For example, currently here in the United States, we have a 105% debt-to-GDP ratio (\$22 Trillion ÷ \$21 Trillion = 1.05) That is the calculation used to arrive at that 240% you speak of.</p>

<p>Both are unmanageable debt-to-GDP ratios, the manageability consensus among economists being no higher than 60% debt-to-GDP ratio. So its not just unmanageable for individuals, it is indeed, unmanageable for nation-states as well, but if those figures concerning Japan are correct, why have they not entered insolvency is your burning question.</p>

<p>Well, remember that nation-states can sell their debt via the bonds that Alexis talked about in his answer. Human behavior is always at play here. It could be that wishful thinkers type of investors are still hopeful that Japanese policymakers will reverse course just as with U.S. Treasury holders. Additionally pointed out by Alexis, Japan is a creditor to the nation that holds the worlds reserve currency, so we have to ask ourselves, if Japan was allowed to go insolvent, what effect would it have on the nation-state who holds the worlds reserve currency? Is that a desirable outcome to the international monetary system?</p>

<p>The difference with an individual is, nobody really cares if you go bankrupt except your loved ones. No one has skin in the game with your finances except for you and your loved ones. With nation-states there can be a lot more at stake.</p>

<p>Also, much like the United States, Japan is a major world economy with credit-worthiness and can also borrow in a currency that it prints...the yen. If you could borrow money as an individual in a currency that you print, you see how you would not go bankrupt so easily despite a huge debt load?</p>

<p>Remember, its the interest and late fees that really do us in where we as individuals have to file for bankruptcy and we can't print more money, we have to work more hours or hit the lottery or an inheritance.</p>

<p>By the way, by my research, in 2017 the Japanese debt-to-GDP was more like 253%.</p>

<p>The good news is, if Japan can hold such a debt load, it does not seem that the United States will collapse at 105%. This does not mean all is well.</p>

<p>When a nation-states debt-to-GDP ratio goes above 90%, that nation has gone through the looking glass into a new world of negative marginal returns on debt, slow growth and eventual default through nonpayment, inflation or renegotiation. This day is sure to arrive for both Japan and the United States, so do not be frustrated that it has not happened, it just does not happen as quickly for a nation-state than in our own personal finances. More complexity involved, before that day comes it will be preceded by a long period of weak growth, stagnant wages, rising income inequality and social discord.</p>

<p>Here are a couple of resources that may also be of help to your inquiry:</p>

<p><a href="https://www.bis.org/publ/work352.htm" rel="nofollow noreferrer">https://www.bis.org/publ/work352.htm</a></p>

<blockquote>
  <p>Used wisely and in moderation, [debt] clearly improves welfare. But, when [debt] is used imprudently and in excess, the result can be disaster. For individual households and firms, overborrowing leads to bankruptcy and financial ruin. For a country, too much debt impairs the governments' ability to deliver essential services to its citizens.</p>
</blockquote>

<p><a href="https://voxeu.org/article/debt-and-growth-revisited" rel="nofollow noreferrer">https://voxeu.org/article/debt-and-growth-revisited</a></p>

<p>Have you researched whether that is already going on in Japan? See also <a href="https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1237.pdf" rel="nofollow noreferrer">this 2010 European Central Bank study</a>. It says that "a higher public debt-to-GDP ratio is associated, on average, with lower long-term growth rates at debt levels above the range of 90-100% of GDP."</p>

<p>Notice this is not research from some fringe economics, it comes from the heart of the international monetary system and sponsored by the central banks.</p>

<p>So stay tuned, as evidence is accumulating that developed economies such as Japan and in particular, the United States, are on dangerous ground and possibly past the point of no return.</p>

<p>For example, despite not going bankrupt the last two decades for the Japanese economy has not been great, and I believe it could be possible that our next two decades here in the United States will look something like Japan's last two decades.</p>

CC BY-SA 4.0
2019-09-08T05:55:34.473Z
2020-05-21T16:33:59.340Z
2020-05-21T16:33:59.340Z
Daniel
<p>Not much point in writing a lot about an equation that any sovereign debt analyst should know. </p>

<p>Sustainability definitely has to do with debt/gdp, the prevailing interest rate for sustaining that debt and the primary balance that the country can run. </p>

<p>The IMF has a nice enough preso on this: <a href="https://www.imf.org/external/region/tlm/rr/pdf/aug7.pdf" rel="nofollow noreferrer">Fiscal and Debt Sustainability</a> and I'd recommend going there before looking for other answers on this forum. </p>

CC BY-SA 4.0
2019-02-25T16:46:59.180Z
2019-02-25T16:46:59.180Z
NBF
<p>First understand the concept of debt to GDP ratio %. It means country's ability to repay it's debt. Means 240% means Japan has 2.4 times directly reserves to meet it's external debt. It is a good sign low % is a bad sign. Lower than 100% is a bad sign.</p>

CC BY-SA 4.0
2018-10-12T00:35:32.220Z
I'm sorry, but that's not what this means.  240% means that for every unit of GDP, Japan has 2.4 units of debt.  It's debt divided by GDP, not GDP divided by debt.  High numbers are bad not good in this statistic.
Brythan
CC BY-SA 4.0
2018-10-11T08:47:11.803Z
2018-10-11T08:47:11.803Z
Manish Talreja
<p>The current monetary/financial system is unsustainable. Exploding debt is the unavoidable outcome of a <a href="http://www.zerohedge.com/news/2015-02-02/100-trillion-global-debt-ponzi-scheme" rel="nofollow noreferrer">Global Debt Based Ponzi Scheme</a></p>

<p>Commercial banks create the money as debt. All money is debt. Only the principal is created, not the interest payments, so there is always more debt than money. No way to pay it back unless we end the real economy and all start working for the banks that create the money. </p>

<p>Fiat debt based monetary systems have a finite life span. On average it takes around 27 years before fiat money returns to intrinsic value zero.</p>

<p>The human race has a lot of experience with these type of monetary systems. I think there are around 227 cases documented, each time the result is the same.</p>

<p>This time we have tried it on a global scale. All currencies including the reserve currency dollar are fiat debt based.</p>

<p>However poor the results this is still the preferred system. It is preferred by the elites that own the sleep walking masses.</p>

<p>The negative rates are a clear sign that we are near the end of the current system. As the masses are still vast asleep it will be replaced by a similar system. This is the price of ignorance.</p>

<p>See the <strong>1988</strong> cover of the Rothschild publication The Economist. It show a Phoenix standing on burning money, predicting a new world currency in 2018.</p>

<p>It is the currency for global enslavement and it is still right on schedule.</p>

<p><a href="https://i.sstatic.net/5aCcI.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/5aCcI.jpg" alt="enter image description here"></a></p>

CC BY-SA 3.0
2016-06-22T13:20:46.617Z
Well the alternative to ponzi schemes is global enslavement to financial elites....
D J Sims
CC BY-SA 3.0
2016-05-02T11:22:56.167Z
Beware sleep walking citizens!! The Elites are out there to get you, they found a way to avoid the no-ponzi condition (http://economics.stackexchange.com/questions/6037/lagrangian-how-to-understand-the-no-ponzi-condition) so as to falsify their transversality conditions. Everything shall return to equilibrium as we approach infinity.
dv_bn
CC BY-SA 3.0
2016-05-02T08:09:04.933Z
2016-05-02T08:09:04.933Z
Onno
<p>As you have pointed out: where it comes from is very important. As to the Japanese situation it is quiet different from the US position from example. In fact most of the Japanese debt is owned by Japanese people (90% of the current debt). More specifically the BoJ plays a big role as a buyer, and puts pressure on Japanese yield, which makes it cheaper for the government to issue bonds ! </p>

<p>Another interesting point that is usually left by anlysts: Japan is the biggest creditor in the world. The country holds a net amount of about 3 trillion USD (367 trillion yen) of financial assets through the world, which makes Japan the first creditor worldwide (before China !).</p>

<p>An interesting further reading which gives other information on the Japanese debt under stress tests of the IMF (P.40): <a href="https://www.imf.org/external/pubs/ft/scr/2015/cr15197.pdf" rel="noreferrer">https://www.imf.org/external/pubs/ft/scr/2015/cr15197.pdf</a></p>

<p>You also might want to read this paper of Rogoff and Reinhart called "<em>Growth in a time of debt</em>": <a href="http://www.nber.org/papers/w15639" rel="noreferrer">http://www.nber.org/papers/w15639</a> . It was really criticized but is a good first glimpse... Afterwards you might want to go a little bit deeper into the debt sustainability analysis of the IMF...</p>

<h2>Edit</h2>

<ul>
<li>The reference of Rogoff is more an introduction to the comprehension of debt dynamic than an argument for the existence of a threshold than would reduce growth. On the controversy of the paper, like pointed out by @dv_bn, you can check this intersting article: <a href="http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up" rel="noreferrer">http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up</a></li>
<li>Thanks to @denesp: Whenever you see "first creditor" this usually takes public and private assets into account. However, if you want to analyze the public debt you should only take financial assets owned by the government (mostly T-Bills regarding Japan).</li>
<li>I add also an interesting article I have read about it, which was written by economists from the NY FED, check it out: <a href="http://libertystreeteconomics.newyorkfed.org/2016/06/the-rapidly-changing-nature-of-japans-public-debt.html#.V2qJW2r2aM8" rel="noreferrer">http://libertystreeteconomics.newyorkfed.org/2016/06/the-rapidly-changing-nature-of-japans-public-debt.html#.V2qJW2r2aM8</a></li>
</ul>

CC BY-SA 3.0
2016-05-01T14:26:24.153Z
"Japan is the biggest creditor in the world" Do you mean the Japanese government or Japanese people and institutions? (Consider that we are talking about Japanese public debt.)
Giskard
CC BY-SA 3.0
2016-05-01T14:30:15.907Z
both government and corporates: http://www.bloomberg.com/news/articles/2015-05-22/japan-still-beating-china-on-one-score-world-s-no-1-creditor
Alexis L.
CC BY-SA 3.0
2016-05-01T14:44:39.353Z
But why do you include debt not owned by a state when talking about the sustainability of said state's debt?
Giskard
CC BY-SA 3.0
2016-05-01T14:51:37.557Z
You have to take all sources of public debt (sovereign, private, etc.) when you analyze the country's debt
Alexis L.
CC BY-SA 3.0
2016-05-01T15:41:55.497Z
Rogoff and Reinhart's paper was really about giving support to austerity policies. There is nothing like a magic threshold for debt sustainability and even the authors, who have been in the middle of a significant controversy have acknowledged so. This New Yorker's article (http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up) gives an insightful outlook at this issue.
dv_bn
CC BY-SA 3.0
2016-05-01T16:14:47.080Z
I agree with @dv_bn however my point was to give an interesting view on the topic and I think this paper is useful regarding the dynamic of debt !
Alexis L.
CC BY-SA 3.0
2016-05-01T16:46:54.523Z
I agree with you @Alexis_L, though you could modify your answer to account for this point, so as to avoid anyone to take this paper as a reference for the existence of such a threshold.
dv_bn
CC BY-SA 3.0
2016-05-01T17:10:15.540Z
@AlexisL. You do have to take all sources of public debt into account. But you should not take non-public assets into account on the other side. We are talking about some sort of balance of the public sector, right? Your argument seems to be that Japan has a lot of debt but also a lot of credit, so on net the situation is not so bad. But Japanese firms have a lot of credit. These assets are not owned by the Japanese public sector which has a lot of debt. So on net the Japanese public sector is still a huge debtor.
Giskard
CC BY-SA 3.0
2016-05-01T17:34:10.777Z
In addition, the Japanese central Bank (BoJ) holds about 25% of Japan's public debt : gross public Debt = Y1,212,863bn as per IMF's World Economic OUtlook Database of April 2016; holdings of Japanese government Bonds by the BoJ = Y301,476bn as of 20 April, 2016 (source BoJ : https://www.boj.or.jp/en/statistics/boj/other/mei/index.htm/ )
Hector
CC BY-SA 3.0
2016-05-01T17:36:54.380Z
@denesp if you take a look at the stance of Japan as a creditor, you take the public and private sector into account (it's a global approach). If you only look at what is hold by the government you also have a lot of financial assets (a lot of T-bills for instance, which are not owned by Japanese firms) which makes the net position less alarmist
Alexis L.
CC BY-SA 3.0
2016-05-01T17:51:44.670Z
@AlexisL. That is fine, so you could edit your answer to reflect this. Mixing publicly and privately owned debt is - in my opinion - very misleading. E.g. if US public debt was 1000% of the US GDP and it was all owned by one US citizen I would say the US government will probably have to default. But if the FED owned all the debt this would not be a problem.
Giskard
CC BY-SA 3.0
2016-05-01T13:03:54.227Z
2016-06-22T12:53:01.670Z
2016-06-22T12:53:01.670Z
Alexis L.
<p>I was reading that Japan has a debt to gdp ratio of 240pc and I cannot understand why this has not left the country "bankrupt"? From looking at this like an ordinary person this level would be completely unmanageable. Furthermore, considering Greece had problems with its national debt with a debt to gdp ratio of less than 200pc I am not sure how Japan has sustained significantly higher ratio for so long? Therefore my question is what makes a certain level of debt to gdp ratio sustainable? Also who does the government owe the debt to and does it matter who they borrow from? ie domestic vs international.</p>

<p>For interest see the following graph,</p>

<p><a href="https://i.sstatic.net/8s0VI.png"><img src="https://i.sstatic.net/8s0VI.png" alt="enter image description here"></a></p>

CC BY-SA 3.0
2016-05-01T15:03:42.857Z
Most ordinary persons will not be bankrupt if they have debt equal to their 2 year income (production/output). In fact, lots of mortgage debt is built around this not happening.
FooBar
CC BY-SA 3.0
2016-05-02T04:25:06.577Z
Might be wrong, but isn't debt at 240% of annual income roughly what someone will have in the US just out of medical school?
Scott
CC BY-SA 3.0
2016-05-02T06:34:53.597Z
@FooBar GDP isn't government income, though. If you want to make that analogy, you'd need to use the income figures, not GDP. And there, the figure is a lot bleaker - it's closer to ten times the annual income, and the budget has been in a sizeable deficit for quite a while.
Luaan
<macroeconomics><gdp><debt><national-accounts><japan>
What Level of Government Debt to GDP Ratio is Sustainable?
Trajan
# What Level of Government Debt to GDP Ratio is Sustainable?

(Asked by: username_0 on 2016-05-01)

I was reading that Japan has a debt to gdp ratio of 240pc and I cannot understand why this has not left the country "bankrupt"? From looking at this like an ordinary person this level would be completely unmanageable. Furthermore, considering Greece had problems with its national debt with a debt to gdp ratio of less than 200pc I am not sure how Japan has sustained significantly higher ratio for so long? Therefore my question is what makes a certain level of debt to gdp ratio sustainable? Also who does the government owe the debt to and does it matter who they borrow from? ie domestic vs international.

For interest see the following graph,

[![enter image description here](https://i.sstatic.net/8s0VI.png)](https://i.sstatic.net/8s0VI.png)

**Tags:** macroeconomics, gdp, debt, national-accounts, japan
> **Comments:**
> **username_1**: Most ordinary persons will not be bankrupt if they have debt equal to their 2 year income (production/output). In fact, lots of mortgage debt is built around this not happening.  
> **username_2**: Might be wrong, but isn't debt at 240% of annual income roughly what someone will have in the US just out of medical school?  
> **username_3**: @FooBar GDP isn't government income, though. If you want to make that analogy, you'd need to use the income figures, not GDP. And there, the figure is a lot bleaker - it's closer to ten times the annual income, and the budget has been in a sizeable deficit for quite a while.  

---

## 8 answers

### Answer by username_14 on 2016-05-01. Score: 13 | Accepted answer

As you have pointed out: where it comes from is very important. As to the Japanese situation it is quiet different from the US position from example. In fact most of the Japanese debt is owned by Japanese people (90% of the current debt). More specifically the BoJ plays a big role as a buyer, and puts pressure on Japanese yield, which makes it cheaper for the government to issue bonds !

Another interesting point that is usually left by anlysts: Japan is the biggest creditor in the world. The country holds a net amount of about 3 trillion USD (367 trillion yen) of financial assets through the world, which makes Japan the first creditor worldwide (before China !).

An interesting further reading which gives other information on the Japanese debt under stress tests of the IMF (P.40): <https://www.imf.org/external/pubs/ft/scr/2015/cr15197.pdf>

You also might want to read this paper of Rogoff and Reinhart called "*Growth in a time of debt*": <http://www.nber.org/papers/w15639> . It was really criticized but is a good first glimpse... Afterwards you might want to go a little bit deeper into the debt sustainability analysis of the IMF...

## Edit

* The reference of Rogoff is more an introduction to the comprehension of debt dynamic than an argument for the existence of a threshold than would reduce growth. On the controversy of the paper, like pointed out by @dv\_bn, you can check this intersting article: <http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up>
* Thanks to @denesp: Whenever you see "first creditor" this usually takes public and private assets into account. However, if you want to analyze the public debt you should only take financial assets owned by the government (mostly T-Bills regarding Japan).
* I add also an interesting article I have read about it, which was written by economists from the NY FED, check it out: <http://libertystreeteconomics.newyorkfed.org/2016/06/the-rapidly-changing-nature-of-japans-public-debt.html#.V2qJW2r2aM8>

> **Comments:**
> **username_15**: "Japan is the biggest creditor in the world" Do you mean the Japanese government or Japanese people and institutions? (Consider that we are talking about Japanese public debt.)  
> **username_14**: both government and corporates: http://www.bloomberg.com/news/articles/2015-05-22/japan-still-beating-china-on-one-score-world-s-no-1-creditor  
> **username_15**: But why do you include debt not owned by a state when talking about the sustainability of said state's debt?  
> **username_14**: You have to take all sources of public debt (sovereign, private, etc.) when you analyze the country's debt  
> **username_13**: Rogoff and Reinhart's paper was really about giving support to austerity policies. There is nothing like a magic threshold for debt sustainability and even the authors, who have been in the middle of a significant controversy have acknowledged so. This New Yorker's article (http://www.newyorker.com/news/john-cassidy/the-reinhart-and-rogoff-controversy-a-summing-up) gives an insightful outlook at this issue.  
> **username_14**: I agree with @dv_bn however my point was to give an interesting view on the topic and I think this paper is useful regarding the dynamic of debt !  
> **username_13**: I agree with you @Alexis_L, though you could modify your answer to account for this point, so as to avoid anyone to take this paper as a reference for the existence of such a threshold.  
> **username_15**: @AlexisL. You do have to take all sources of public debt into account. But you should not take non-public assets into account on the other side. We are talking about some sort of balance of the public sector, right? Your argument seems to be that Japan has a lot of debt but also a lot of credit, so on net the situation is not so bad. But Japanese firms have a lot of credit. These assets are not owned by the Japanese public sector which has a lot of debt. So on net the Japanese public sector is still a huge debtor.  
> **username_16**: In addition, the Japanese central Bank (BoJ) holds about 25% of Japan's public debt : gross public Debt = Y1,212,863bn as per IMF's World Economic OUtlook Database of April 2016; holdings of Japanese government Bonds by the BoJ = Y301,476bn as of 20 April, 2016 (source BoJ : https://www.boj.or.jp/en/statistics/boj/other/mei/index.htm/ )  
> **username_14**: @denesp if you take a look at the stance of Japan as a creditor, you take the public and private sector into account (it's a global approach). If you only look at what is hold by the government you also have a lot of financial assets (a lot of T-bills for instance, which are not owned by Japanese firms) which makes the net position less alarmist  
> **username_15**: @AlexisL. That is fine, so you could edit your answer to reflect this. Mixing publicly and privately owned debt is - in my opinion - very misleading. E.g. if US public debt was 1000% of the US GDP and it was all owned by one US citizen I would say the US government will probably have to default. But if the FED owned all the debt this would not be a problem.  

---

### Answer by username_4 on 2016-05-01. Score: 9

I don't think you can sensibly discuss this without including two additional factors:

* what is the prevailing interest rate?
* is the debt in local or foreign currency?

The first affects the cost of repayments. Interest rates are at record lows in the developed world. How much money is it reasonable to borrow at 0%? What about [-0.1%](http://www.bbc.co.uk/news/business-35436187), is there even a limit that could be sensibly applied to such a negative rate, when the more you borrow the more you will be paid to borrow it?

Secondly, debts in local currency, especially hard currencies like the dollar, yen and euro, are much less risky than debts in non-local currency which can be affected by exchange rate shifts.

Further, like with individuals, it's not sensible to assign a single level beyond which you should not go. It should be more of a process of credit scoring. The 'credit score' for governments is effectively the bond yield. During the European crisis of 2008+, bond yields went high. Today the Japanese bond yield is .. negative. Indicating that it's thought safer to lend your money to Japan than to hang on to it as cash or keep it anywhere else.

Where are the low rates coming from? People and organizations that are extremely wealthy have a problem. The world has run out of good-yielding investments and safe, high-interest debtors. There is literally no safer way of keeping a hundred billion dollars than lending it to a developed world government. Even if you have to pay them for a privilege. It's safer than keeping it in a bank that might go bust.


---

### Answer by username_5 on 2016-05-01. Score: 3

The key point is not the Debt/GDP ratio by itself but the sustainability of the debt over time.
The government borrows money from the market and uses taxes to repay it, as households borrow money from banks and use their income to repay it.
Before moving on, let's look at a simple debt accumulation equation
[![Inter temporal debt dynamics](https://i.sstatic.net/8LdcY.png)](https://i.sstatic.net/8LdcY.png)

where b(t+1) is the debt/GDP ratio in period t+1. It depends in s, that is the primary surplus of the government, r, that is the real interest rate, and gamma, the growth rate of the economy. In Japan the debt/GDP ratio is high but they also have very low real interest rates and a primary surplus which allow them to repay the debt. On the contrary Greece, accumulated to much debt enjoying the low interest rates granted by the Euro. When the crisis hit, markets lost confidence on Greece's ability to pay back. Thus they sell off their bonds. Interest rates sky-rocketed and because of the economic crisis the growth felt down. Moreover, the government had, and still have, many problems in collecting taxes. Therefore, Greek debt is more unstable and dangerous than the Japanese one, even if it is lower both in relative and absolute terms.
In a nutshell, default arises when you run out of money for repaying interests regardless of the amount of the outstanding debt.
Nonetheless, Japan is in trouble. The more the debt growths, the more budget resources will be allocated to repay interests. Hence, forcing the government either to increase taxes or reduce spending in other areas, something that is politically difficult. Anyway I suggest you to watch this video, it gives a roughly idea of what is going on there
[Japan's Debt Problem Visualized](https://www.youtube.com/watch?v=Njp8bKpi-vg)

Regarding your question on domestic vs international creditors, they are important when the government wants to decide whether to default or not. The more debt is owned by resident the more costly is going to be to default as your citizens would bare the loss. And, in any case, the government has to pay back interest regardless of the nationality of the creditor.


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### Answer by username_6 on 2016-05-02. Score: 2

There is a key factor determining a country's likelihood of default which has only become a research topic in the last decade or two: The quality of its government, in particular the prevalence of corruption. (Interestingly, the type of government -- democracy, autocracy -- is comparatively unimportant.)

Greece has a poor political system; cronyism and corruption are wide-spread. Japan's government, by contrast, works very well (although certainly conflicts of interest for example concerning the regulation of nuclear industry have come to light). So far Japan's creditors trust the country to repay; Greece's are not so sure.


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### Answer by username_7 on 2019-09-08. Score: 1

I think a lot of people here gave some really good answers, including the person who got some downvotes.

240% debt-to-GDP ratio is based on a mathematical calculation. For example, currently here in the United States, we have a 105% debt-to-GDP ratio (\$22 Trillion ÷ \$21 Trillion = 1.05) That is the calculation used to arrive at that 240% you speak of.

Both are unmanageable debt-to-GDP ratios, the manageability consensus among economists being no higher than 60% debt-to-GDP ratio. So its not just unmanageable for individuals, it is indeed, unmanageable for nation-states as well, but if those figures concerning Japan are correct, why have they not entered insolvency is your burning question.

Well, remember that nation-states can sell their debt via the bonds that Alexis talked about in his answer. Human behavior is always at play here. It could be that wishful thinkers type of investors are still hopeful that Japanese policymakers will reverse course just as with U.S. Treasury holders. Additionally pointed out by Alexis, Japan is a creditor to the nation that holds the worlds reserve currency, so we have to ask ourselves, if Japan was allowed to go insolvent, what effect would it have on the nation-state who holds the worlds reserve currency? Is that a desirable outcome to the international monetary system?

The difference with an individual is, nobody really cares if you go bankrupt except your loved ones. No one has skin in the game with your finances except for you and your loved ones. With nation-states there can be a lot more at stake.

Also, much like the United States, Japan is a major world economy with credit-worthiness and can also borrow in a currency that it prints...the yen. If you could borrow money as an individual in a currency that you print, you see how you would not go bankrupt so easily despite a huge debt load?

Remember, its the interest and late fees that really do us in where we as individuals have to file for bankruptcy and we can't print more money, we have to work more hours or hit the lottery or an inheritance.

By the way, by my research, in 2017 the Japanese debt-to-GDP was more like 253%.

The good news is, if Japan can hold such a debt load, it does not seem that the United States will collapse at 105%. This does not mean all is well.

When a nation-states debt-to-GDP ratio goes above 90%, that nation has gone through the looking glass into a new world of negative marginal returns on debt, slow growth and eventual default through nonpayment, inflation or renegotiation. This day is sure to arrive for both Japan and the United States, so do not be frustrated that it has not happened, it just does not happen as quickly for a nation-state than in our own personal finances. More complexity involved, before that day comes it will be preceded by a long period of weak growth, stagnant wages, rising income inequality and social discord.

Here are a couple of resources that may also be of help to your inquiry:

<https://www.bis.org/publ/work352.htm>

> Used wisely and in moderation, [debt] clearly improves welfare. But, when [debt] is used imprudently and in excess, the result can be disaster. For individual households and firms, overborrowing leads to bankruptcy and financial ruin. For a country, too much debt impairs the governments' ability to deliver essential services to its citizens.

<https://voxeu.org/article/debt-and-growth-revisited>

Have you researched whether that is already going on in Japan? See also [this 2010 European Central Bank study](https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp1237.pdf). It says that "a higher public debt-to-GDP ratio is associated, on average, with lower long-term growth rates at debt levels above the range of 90-100% of GDP."

Notice this is not research from some fringe economics, it comes from the heart of the international monetary system and sponsored by the central banks.

So stay tuned, as evidence is accumulating that developed economies such as Japan and in particular, the United States, are on dangerous ground and possibly past the point of no return.

For example, despite not going bankrupt the last two decades for the Japanese economy has not been great, and I believe it could be possible that our next two decades here in the United States will look something like Japan's last two decades.


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### Answer by username_8 on 2019-02-25. Score: 1

Not much point in writing a lot about an equation that any sovereign debt analyst should know.

Sustainability definitely has to do with debt/gdp, the prevailing interest rate for sustaining that debt and the primary balance that the country can run.

The IMF has a nice enough preso on this: [Fiscal and Debt Sustainability](https://www.imf.org/external/region/tlm/rr/pdf/aug7.pdf) and I'd recommend going there before looking for other answers on this forum.


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### Answer by username_9 on 2018-10-11. Score: 0

First understand the concept of debt to GDP ratio %. It means country's ability to repay it's debt. Means 240% means Japan has 2.4 times directly reserves to meet it's external debt. It is a good sign low % is a bad sign. Lower than 100% is a bad sign.

> **Comments:**
> **username_10**: I'm sorry, but that's not what this means.  240% means that for every unit of GDP, Japan has 2.4 units of debt.  It's debt divided by GDP, not GDP divided by debt.  High numbers are bad not good in this statistic.  

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### Answer by username_11 on 2016-05-02. Score: -4

The current monetary/financial system is unsustainable. Exploding debt is the unavoidable outcome of a [Global Debt Based Ponzi Scheme](http://www.zerohedge.com/news/2015-02-02/100-trillion-global-debt-ponzi-scheme)

Commercial banks create the money as debt. All money is debt. Only the principal is created, not the interest payments, so there is always more debt than money. No way to pay it back unless we end the real economy and all start working for the banks that create the money.

Fiat debt based monetary systems have a finite life span. On average it takes around 27 years before fiat money returns to intrinsic value zero.

The human race has a lot of experience with these type of monetary systems. I think there are around 227 cases documented, each time the result is the same.

This time we have tried it on a global scale. All currencies including the reserve currency dollar are fiat debt based.

However poor the results this is still the preferred system. It is preferred by the elites that own the sleep walking masses.

The negative rates are a clear sign that we are near the end of the current system. As the masses are still vast asleep it will be replaced by a similar system. This is the price of ignorance.

See the **1988** cover of the Rothschild publication The Economist. It show a Phoenix standing on burning money, predicting a new world currency in 2018.

It is the currency for global enslavement and it is still right on schedule.

[![enter image description here](https://i.sstatic.net/5aCcI.jpg)](https://i.sstatic.net/5aCcI.jpg)

> **Comments:**
> **username_13**: Beware sleep walking citizens!! The Elites are out there to get you, they found a way to avoid the no-ponzi condition (http://economics.stackexchange.com/questions/6037/lagrangian-how-to-understand-the-no-ponzi-condition) so as to falsify their transversality conditions. Everything shall return to equilibrium as we approach infinity.  
> **username_12**: Well the alternative to ponzi schemes is global enslavement to financial elites....  

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