The Japanese economy continued its downward path according to data released yesterday. This surprised pundits who believe in QEs -- central bank purchases of government debt. The QE's seem to have had no impact in the US other than balooning the Federal Reserve balance sheet. Looks like a similar outcome has emerged in Japan.
What is important in the Japanese story is the enormous level of Japanese government debt, moving toward 2 1/2 times GDP at a rapid rate. Japan is running out of room. So is the rest of the developed world.
At some point, enormous debt levels proscribe policy alternatives and that is precisely what has happened in Japan. Higher and higher debt levels eventually will reach a tipping point and further sustained economic progress becomes impossible. Europe is probably there already. Japan is showing, with the recent data, that it is there as well.
So, what about the US? We seem to purring along while the rest of the developed world stagnates. Can this continue? Our national debt has doubled in the last six years while GDP has moved sluggishly forward. We can't be far behind Japan and Europe.