I keep beating these drums because I think Americans have to finally get serious about understanding and responding to the emergence of not just one new East Asian economic powerhouse but at least two–both Japan and China. The U.S. conventional wisdom these days is that Japan is finished. I can’t believe how many times I hear some economist talking about Japan’s lost decades.
So to the folks who keep discounting Japan, explain this: Japan is now the top foreign holder of U.S. Treasurys, a position the Chinese have held for several years. Private investors and official institutions in Japan now own $1.2244 trillion of U.S. government securities. That passes the amount held by Chinese institutions–$1.2237 trillion.
We are talking about TRILLIONS of dollars here. Aside from recognizing that both countries have enormous economic strength, we should also accept the fact that we are constrained in our ability to shape their behavior by the fact that we owe them so much money. Being a creditor gives a nation enormous power. Being a debtor limits a nation’s power. Ask Greece. Do we want to go the way of Greece? Obviously not. Which is why we simply have to overcome our ideological and political gridlock to adopt responsible long-term fiscal policies.
