The Prime Minister of Japan Shinzo Abe, who not to long ago engaged in one of the largest fiscal infusions in modern economic history with the hope of jump starting Japans economy that has been ailing for the last 20 years, has announced two mutually exclusive actions. Japan is the most indebted nation in the world in terms of public debt and even many economists, the ones who argue that debt can create higher marginal growth rates, state that there is little good adding additional debt will do and that they have probably crossed the terminal point at where there is no way humanly possible that Japan could ever pay of it's debt.
At this point and time there is really not a whole lot that Japan can do save spread the pain as evenly as possible by trying to pay down the debt as much as possible before even the debt interest is too much. This explains why the Prime Minister has announced a tax increase even though most studies I have read have shown that tax hikes alone have never made a real impact, for some reason governments don't use those added funds for debt pay down but instead use the added funds for additional spending programs. Still, the Prime Minister, and the elites in Japan in general, cannot give up old efforts, after all Japan has enacted dozens of stimulus programs since the mid-90's, and I imagine large swaths of business and industry have come to rely on the periodic transfusions of debt money; would you be surprised to hear that Asian governments have far more collusion between big business and government than even in the good ol' US of A?
The end result of Mr. Abe's efforts are easily predicted. The tax hike will do nothing to lower Japan's debt burden. The stimulus will fail like all other stimulus programs before it. The real question is how long until the wheels come off the bus? For all intents and purposes there appears to be a global race, one which I doubt any nation wants to be the one to win, to be the first brick to fall out of the foundation of the global economy.