The U.S. isn't the only nation where people are worried about the long-term impact of huge levels of government spending and debt. New York Times writer Hiroko Tabuchi reported recently from Tokyo on the economic ill-health of Japan:

How much debt can an industrialized country carry before the nation's economy and its currency bow, then break?...

Here, years of stimulus spending on expensive dams and roads have inflated the country's gross public debt to twice the size of its $5 trillion economy - by far the highest debt-to-G.D.P. ratio in recent memory....

Yet, the finance minister, Hirohisa Fujii, [recently] suggested...that the government would sell 50 trillion yen, about $550 billion, in new bonds - or more....

For jittery investors, Japan's rising sea of debt is the stuff of nightmares: the possibility of an eventual sovereign debt crisis, where the country would be unable to pay some holders of its bonds, or a destabilizing collapse in the value of the yen....

[A]s Washington runs up a trillion-dollar deficit this year, with trillions in debt for years to come, it need look no farther than Tokyo to see how overspending can ravage an economy.

Tokyo's new government, which won a landslide victory on an ambitious (and expensive) social agenda, is set to issue a record amount of debt, borrowing more in government bonds than it will receive in tax receipts for the first time since the years after World War II....

Still, officials insist that Japan is better off than the United States by some measures.

One hugely important difference is that Japan is rich in personal savings and assets, and owes less than 10 percent of its debt to foreigners. By comparison, about 46 percent of America's debt is held overseas by countries such as China and Japan.

Moreover, half of Japan's government bonds are held by the public sector, while government regulations encourage long-term investors like banks, pension funds and insurance companies to buy up the rest.

All of this makes a sudden sell-off of government bonds unlikely, officials argue....

[But i]n the long run, even Japan's sizable assets could fall and eventually turn negative. Japan's rapidly aging population means retirees are starting to dip into their nest eggs - just as government spending increases to cover their rising medical bills and pension payments.

The fall in public and private savings could eventually reverse Japan's current account surplus, possibly driving up interest rates as the public and private sectors compete for funds. Higher interest rates would increase the cost of servicing the debt, and raise Japan's risk of default.

I suppose there is some comfort in the fact that worst-case scenarios rarely happen. Still, what has already occurred in Japan - nearly two decades of economic malaise starting in 1990 - does make one wonder what's ahead for the U.S. if current trends continue, especially if American voters, like the Japanese, demand "an ambitious (and expensive) social agenda."

Related (from the Wall Street Journal): "Is the U.S. Economy Turning Japanese?" by Christopher Wood, author of The Bubble Economy: Japan's Extraordinary Speculative Boom of the '80s and the Dramatic Bust of the '90s.

Also see Robert Samuelson's latest Newsweek column in which he compares the U.S. situation to Japan's, and explores the fundamental question: How much can governments borrow?
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Joseph Slife is a contributing author and editor for SMI. Visit www.soundmindinvesting.com to learn more.