le tend to think that the central government in Japan has a debt problem. In fact, the debt of the central government in Japan is both absolutely and proportionately less than that in the United States. The debt of the Japanese central government of (240 trillion, or US$1.8 trillion, compares to a central government debt approximating US$4.2 trillion in the United States. Proportionately, central government debt in Japan is 38 percent of the nation's annual GDP, while proportionately central government debt in the United States is 62 percent of the nation's annual GDP. Thus, central government debt is not the major problem in the Japanese economy. What does constitute a debt-related problem in the contemporary Japanese economy is the large level of potentially bad loans held by entities of the Japanese central government (Morgan & Pain, 1999).
A far more important problem related to debt is the massive level of problem loans held by the entities within the Japanese banking system. These problem loans threaten the stability of the country's banking system in the way that the savings and loan crisis threatened the stability of the banking system in the United States a decade ago. At that time, the United States opted for a government bailout of the banking system. While some degre
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