Japan’s official economic figures mask a debt burden far heavier than reported, according to geopolitical strategist Peter Zeihan, who argues that the world’s third-largest economy counts planned bond issuance as income rather than a liability.
While the International Monetary Fund pegs Japan’s deficit spending at roughly 2 to 3 percent of GDP, Zeihan suggests the reality is likely triple that figure. He notes that Tokyo’s accounting methods exclude intergovernmental transfers and treat social security payouts as revenue streams rather than obligations. By Zeihan's estimates, the true national debt—including local government obligations and pension arrears—sits between 400 and 500 percent of GDP.
The United States faces a parallel fiscal reckoning. Interest payments on federal debt now rival defense outlays, creating a constant drag on economic activity by driving up borrowing costs. Despite recent efforts to reduce federal personnel rolls during the second Trump administration, spending has hit record highs. The four most prolific spenders in American history—Obama, Trump, Biden, and the second Trump administration—have each outspent their predecessor.
"The difference between say a 4 percent and a 6 percent mortgage is a mortgage payment that’s about 50 percent bigger," Zeihan said.
Europe’s outlook appears even more precarious, lacking the millennial demographic buffer that offers the United States a degree of long-term resilience. Facing a hot war with Russia and the potential withdrawal of American support, European nations are being forced to rebuild military institutions from scratch. Zeihan suggests this could require defense spending to surge from negligible levels to as much as 30 percent of GDP, forcing governments to ignore entrenched budget laws.
With deglobalization and rapid aging breaking traditional economic models, conventional solutions may prove inadequate. Zeihan pointed to a historical Japanese precedent known as Tokusei—a benevolent rule or debt cancellation—as a potential, if chaotic, endgame for the current cycle.
"The Emperor just walks out, waves his scepter around, declares that every debt is null and void, and everyone starts over," he said.
Such a reset would instantly wipe out savings and mortgages. Investors betting on a return to fiscal normalcy, Zeihan implies, are likely betting against history.
