Japan's cancerous debt is eating it alive.

Japanese debt is now approaching 230% of its falling GDP.  That's the death knell of the Japanese economy.  The eventual outcome will be more far reaching than many can imagine.  The suggested fix?  Double the national sales tax to 10% and target it eventually for 15%.  Japan has massive debt, rapidly aging demographics, nearly zero immigration and of course a nuclear catastrophe that will take decades to clean up.  Their debt was bad enough when the rest of the world was scrambling to consume their industrial production but with the global recession starting to look a lot like the early phases of a global depression, exports will not save them.

Worse still, doing what appears to be the right thing of increasing taxes to reduce deficit and debt will only make things worse in the near to medium term.  Chemotherapy should be applied to cancer patients before they enter the terminal phase of the disease.  Hitting an already massively weakened patient with poisons is only going to hasten the patient's demise.  National debt is economic cancer.  If Japan does raise taxes, its currency will become stronger.  This will put increased pricing pressure on its exports and decimate its workforce as other lower cost suppliers in Asia like Hyundai kick the likes of Toyota to the curb with all of its massive and unpayable debt.  In addition, the best and brightest Japanese youth will leave the country to find a place to live where they do not get taxed to death in order to pay for the sins of the last generation.

At the end of the day the current trend of deflation will play out and Japan will have no choice but to massively debase its currency.  The resulting inflation will cause the price of everything to skyrocket but salaries will languish.  The net effect will be just another tax.  Japan is Greece on a massive scale.  The effects of the great credit bust will be massive and lasting on Japanese society and perhaps even its culture over the long run.  The Japanese concepts of permanent employment and of trusting corporations and government will collapse.  There will be massive civil unrest.  They might even make big changes to their immigration policies and open their borders and their societies to immigrants (as long as they bring money and talent with them).

None of the coming problems for Japan will be completely localized.  As the likes of Toyota and other debt laden car manufacturers of Japan begin to roll over they will have no choice but to downsize and reduce production.  Toyota is another GM waiting to happen.  As a result, the US market will no longer be flooded with high quality, cheap cars that have been subsidized with massive foreign debt.  Their collapse will lead to higher prices and less U.S. availability of everything they manufacture.  They, in essence, have been selling stuff to us at loss leader prices for decades and making up for the difference by taking on debt.  Buying market share with debt helped them put GM out of business but now they will choke on that same debt.  As Toyota goes, so goes the Japanese economy and likely the Japanese government and perhaps even the current Japanese way of life.