As McCormack points out, Japan can dispose of its debt in three possible ways: increase GNP (rapidly), tax, or inflate. An explosive growth in GNP is unlikely. So the next alternative is taxes, and over the next twenty-five years taxes could skyrocket to the point where they surpass notorious situations such as Sweden's. Withholdings that in 1997 took a bite of about 36 percent out of the average taxpayer's income are estimated to soar to more than 63 percent by the year 2020 – and these tax increases do not take into account the burgeoning national debt.
The consumption (sales) tax rose from 3 to 5 percent in 1997 – and there is strong pressure to raise it to 10 percent or more once the economy recovers. Indirect taxes, such as road tolls, surcharges such as the Ministry of Health and Welfares tax on medicine, and a myriad of fees levied by other distressed agencies will also double and triple. Meanwhile, the level of services will decline, pension payouts will drop, and patients will be called upon to bear a larger share of medical costs. Add the rising consumption tax, and by 2025 the average Japanese citizen could end up paying up to 80 percent of his income to the government.
Obviously, this isn't going to happen – such high taxes would strain taxpayers to the breaking point. Hence it would seem that «printing money» (having the government buy bonds or deposit money in banks), thereby causing inflation, would be the obvious next step. But this, too. Taggart Murphy points out, may not work, since it would undermine the value of government bonds; at the same time, banks, grown cautious after the Bubble, might not turn around and lend the money to the public. We're back to the Mole Game: Cut down on government spending, and millions of people (including politicians) will be out of work. Raise taxes too high, and even the long-suffering Japanese public will rise up in anger. Print money, and government bonds lose their value. So what to do? Nobody knows.
All this comes of supporting an artificial regime so long that everyone's livelihood depends on it. So elaborate is this structure that to change any part of it threatens the whole; hence it is nearly impossible to make serious reforms. Facing a similar situation, Abraham Lincoln recounted the following story:
Two boys out in Illinois took a short cut across an orchard. When they were in the middle of the field they saw a vicious dog bounding toward them. One of the boys was sly enough to climb a tree, but the other ran around the tree, with the dog following. He kept running until, by making smaller circles than it was possible for his pursuer to make, he gained upon the dog sufficiently to grasp his tail. He held on to the tail with a desperate grip until nearly exhausted, when he called to the boy up the tree to come down and help.
«What for?» said the boy.
«I want you to help me let this dog go.»
Some believe that the Japanese save according to «Confucian ethics.» Others point to the fact that high land prices force people to save, since they have no alternative if they wish to own a home. In any case, Japan's stock of savings is not nearly as secure as it looks, for mice have gotten into the storehouse. Behind the scenes, personal and corporate debt is gnawing away at Japan's savings.
Surprisingly, and this runs contrary to the common wisdom about Japan, the Japanese people have an avid aptitude for debt. Credit-card use quadrupled from the mid-1980s to the mid-1990s. Of course, expanded use of credit cards is not what it seems on the surface, for the anti-consumer nature of credit in Japan means that most cards are highly restricted and do not provide much credit as we usually understand it: most people must pay their cards monthly in full. Even so, the public has developed its own form of tobashi, whereby borrowers withdraw money on one card to pay for another. «Buy now, pay later,» with installment purchases and long-term lease arrangements, have led to the growth of giant leasing and consumer-credit companies. Installment buying is so popular in Japan that by the mid-1990s the Japanese were carrying more consumer debt per capita than Americans.
While the public pays for its debt with usurious interest rates, industry has access to free money. Stocks and bonds pay negligible returns, and banks would never foreclose on businesses in their keiretsu grouping. In a world where banks hand out money for free, it would be easy to predict that companies might begin to pile up debt. That they did. Today (and for most of the postwar era), corporate debt in Japan has exceeded equity by an average of 4 to 1 (compared with 1.5 times to 1 in the United States). Allowing companies to leverage themselves far beyond what was considered safe in the West was one of Japan's most successful stratagems. It worked well in the high-growth era, but when exports reached a plateau and growth slowed in the 1990s, these companies found themselves saddled with huge surplus capacity. Suddenly they began to feel the heavy weight of debt on their shoulders.
Judging by history, one could even argue that the Japanese show a cultural bent toward wild, heedless borrowing. Perhaps it was a result of the traditional intense love of the moment. It is remarkable how many Kabuki and puppet-theater plays revolve around debt, or around the misuse of money entrusted to the hero or heroine. (In contrast, Chinese theater is obsessed with injustice and law courts – the misuse of power rather than the misuse of money.) One of the most famous moments in Japanese puppet theater is the scene known as Fuingiri, "Breaking Open the Seal," in the play Meido no Hikyaku. An Osaka shop clerk, Chubei, driven by his love for the courtesan Umekawa, breaks open the seal on a packet of gold coins consigned to him by his master. He knows the punishment will be death, but he can't stop himself. Debt owed by daimyo lords to moneylenders in Osaka brought down the Tokugawa Shogunate in 1868. Debt was the very key to Japan's pre-Bubble financial system, with its cycle of assets-debt-assets. And spiraling debt and misuse of funds intended for other purposes is the hallmark of the bureaucrats who run agencies such as the tokushu hojin. In the corporate sector, a giant millstone of debt hangs around the neck of Japanese industry. In short, the Japanese are anything but natural savers. On the other hand, who is? It is human nature to borrow-and here is where the bureaucrats guiding Japan's financial system made a mistake that has had serious consequences for society. They punished noncorporate borrowers with usurious interest rates.
In Japan, lenders can legally charge interest of 40 percent, the sort of rate for which Dante confined usurers to the third ring of the Seventh Circle of Hell. While corporations enjoy access to capital at near-zero interest rates, private individuals have no alternative but to turn to sarakin, «consumer loan companies,» a nice name for loan sharks, who lend at official rates ranging from 30 to 40 percent, with actual rates sometimes reaching 100 percent. Failure to repay earns a visit from a crew of gangsters. The Ministry of Finance smiles on this system, because it believes such high rates dampen consumer borrowing. But despite MOF's best intentions, nothing will stop needy people from borrowing money. What consigning the consumer-loan business to gangsters did achieve was to drown millions of people in usurious debt. Saikaku remarks, «Of all the frightening things you can imagine, surely there is nothing as horrifying as having one's fortune ruined and being hounded by creditors. Nothing else even comes close.»
Sarakin are the hopeless debtor's last resort, yet it is estimated that in the late 1990s borrowers from loan sharks amounted to 12 million people (one in eight adults). In fact, the only part of the Japanese banking system to grow appreciably during the 1990s was this one, with assets leaping 25 percent in some years. Of Japan's 12 million «deep debtors,» 1.5 to 2 million are «heavy debtors» with no chance of repaying loans. Bankruptcy is not an alternative for most of them because it carries heavy social disapproval. Also, says Utsunomiya Kenji, Japan's leading bankruptcy attorney, «They haven't declared bankruptcy only because they don't know how.» For most of them, however, the real reason for not declaring bankruptcy is the fear of gangsters. Just as the Yakuza (organized crime) plays a role in Japan's financial system at the high end, by fixing shareholder meetings so that nobody asks questions, it plays an even larger role at the lower end, as loan harvesters. No legal bankruptcy proceeding will prevent a group of burly crew-cut men from threatening your in-laws, pounding on your door at night, and calling you at your place of work twenty-five times a day. As a result, tens of thousands of people disappear each year in a process known as yonige, «Midnight Run.» They discard their homes, change their identities, and move to another city, all to hide from the enforcers of Japan's consumer loans.
Traditionally, people must clear all debts by the end of the year, so New Year's Eve is the premier time for yonige. The 80,000 people who fled in the night in 1996 had nearly doubled by 1999, to 130,000, while estimated sarakin debts quadrupled, from about $45 billion to $200 billion. So popular is the Midnight Run that it has spawned a new business, benriyasan («Mr. Convenient»), facilitators who help families flee their homes and who take care of their possessions while they are on the run. In 1999, Japanese television featured a new drama, The Midnight Run Shop, whose hero devises schemes for people to evade gangster loan enforcers. It's a Mission: Impossible for debtors, with each episode featuring a new clever escape: a disc jockey goes on the lam during a live show; a florist evaporates during a wedding.
Sarakin loans are not the only means by which Japan's financial system beggars the public. The nation has no lender-liability laws, leaving the public at the mercy of scam artists who prey on credulous old people and heavy debtors. Most notorious of the scams is so-called variable life insurance. In the late 1980s and early 1990s, banks and insurance companies colluded in selling these policies to homeowners, claiming that they would guard against high inheritance taxes. A homeowner would mortgage his house and invest the proceeds in an insurance policy but was not told the meaning of the word «variable»; namely, that payouts were not guaranteed. When investments made on their policies went south with the collapse of the Bubble, owners of variable insurance found that they owed more on their houses than their policies were worth.
