Hi Rich,

Simple questions with big, complex answers. Regarding why Japan lends to the US and others when they are dependent on debt themselves ... in a word, globalization. Global currency system, global debt, global trade, etc. A key reason that rates are low around the world is because of the interplay between trade surpluses (in countries like Japan) and investments in local bond markets (Japan buys lots of US treasuries with their excess cash from trade). So, countries like Japan have a very, very, very strong vested interest in maintaining the status quo, i.e. low rates.

More generally, many governments today - including Japan - would rather use fiscal and monetary stimulus than deal with economic problems - regardless of who created them. As such, they use policy tools to reduce interest rates, ramp up debt and continue spending more than they have. What frightens me is that there is no discernible end game - either in Japan or elsewhere - when using these tools. Japan is a great case study because we have 22 years to observe what happens when a government continuously uses monetary and fiscal stimulus in the wake of a credit bubble.