COLUMN: Japan has just shown us the future, and it sends a chill down your spine

Soaring U.S. Debt

The United States is watching Japan and should be trembling. Its public debt has skyrocketed in recent years. Deficits are piling up. Spending is rising. And meanwhile, politicians on both sides continue to promise more programs, more spending, and more debt. They tell themselves that as long as interest rates stay low, everything is fine. They tell themselves that America isn’t Japan. That the dollar is the world’s reserve currency. That investors will always buy U.S. Treasury bonds. Maybe. But for how much longer?

Differences That Offer No Protection

Yes, there are differences between Japan and the United States. Japan’s debt is held mainly by domestic investors. Japan has an aging population that saves a great deal. The United States relies more on foreign investors. Its economy is more dynamic and more diversified. But these differences aren’t magic shields. They guarantee nothing. Japan, too, thought it was special. Japan, too, believed it could defy economic gravity. And look where it stands today: bond yields are rising, the currency is plummeting, and confidence is eroding.

I look at the United States and see a country heading straight for a wall. Not tomorrow. Not in ten years. Right now. With every passing day, the debt grows. Every day, the risk increases. And no one seems to really care. Politicians make speeches. Economists publish studies. But nothing changes. We keep borrowing as if tomorrow didn’t exist.

When Economists Get It Wrong as a Group

How did we get here? How could an entire generation of economists have been so wrong? The answer is both simple and terrifying. They mistook an exceptional period for a new normal. After the 2008 financial crisis, central banks flooded the world with liquidity. Interest rates plummeted. Inflation remained low. And for a decade, this situation persisted. Economists then began to theorize. They created new models. They invented new rules. Modern Monetary Theory was born—the idea that governments can take on unlimited debt as long as they control their currency.

Intellectual hubris in the face of reality

But here’s the thing: reality does not bend to theories. It does not read academic articles. It is not interested in sophisticated econometric models. Reality follows its own laws. And those laws are relentless. You cannot create wealth by printing money. You cannot run up debt indefinitely without consequences. You cannot artificially keep interest rates at zero without creating massive distortions. Japan is reminding us of this today—in the most brutal way possible. Bond markets are rebelling. Investors are demanding higher yields. Confidence is evaporating.

What angers me is the arrogance. The arrogance of those economists who thought they had it all figured out. Who called those who dared to contradict them “cranks.” Who scoffed at fiscal prudence. Now that their theories are collapsing, where are they? What are they saying? Nothing. Or almost nothing. They’re looking for excuses. They’re coming up with new explanations. But they never admit their mistakes.

How Debt Becomes Unsustainable

Understanding what is happening in Japan means understanding how public debt becomes unsustainable. As long as interest rates remain low, debt service remains manageable. The government can refinance its bonds at favorable rates. But when rates rise, everything changes. Suddenly, each new bond issue costs more. Debt service skyrockets. The government has to borrow even more just to pay the interest. It’s a vicious cycle—a spiral that accelerates. And once it starts, it’s very hard to stop. Japan is entering this danger zone. The United States isn’t far behind.

Inflation as a Last Resort

Faced with unsustainable debt, governments have only a few options. They can raise taxes massively. They can drastically cut spending. Or they can let inflation erode the real value of their debt. Historically, it is this last option that is chosen. Because it’s the easiest politically. Because it’s the least visible. Inflation is a hidden tax. It silently robs savers. It gradually destroys purchasing power. But it allows governments to repay their debt with devalued currency. This is likely what lies ahead for Japan. And perhaps for the United States as well.

I’m thinking of ordinary people. Those who have worked their whole lives. Who have saved. Who have trusted the system. They will pay the price for this madness. Their savings will melt away. Their purchasing power will evaporate. And all because irresponsible politicians and arrogant economists thought they could defy fundamental economic laws.

Fiscal discipline is not optional

Japan teaches us a fundamental lesson. Fiscal discipline is not an option. It is not a luxury we can afford when things are going well. It is an absolute necessity. Even for rich countries. Even for major economic powers. Even when interest rates are low. The temptation to spend more is always strong. To borrow more. To put off difficult decisions until later. But “later” always eventually arrives. And when it does, the bill is steep. Japan is discovering this now. After decades of fiscal laxity, after years of ultra-accommodative monetary policy, reality is knocking at the door.

Central banks are not all-powerful

Another crucial lesson: central banks are not all-powerful. For years, people believed they could control everything. That they could keep rates low indefinitely. That they could buy as many bonds as they wanted without consequences. The Bank of Japan took this logic to the extreme. It now holds a massive share of Japan’s public debt. It has turned its balance sheet into a dumping ground for government bonds. And now, it’s trapped. It can no longer truly normalize its monetary policy without causing chaos in the markets. It has become a prisoner of its own strategy.

There is something tragic about this story. The Bank of Japan tried to do the right thing. It wanted to support the economy, stimulate growth, and fight deflation. But along the way, it created a monster: a financial system completely dependent on its intervention and a bond market that no longer functions normally. And now, it doesn’t know how to get out of this situation.

A domino effect that threatens all indebted countries

What happens in Japan doesn’t stay in Japan. Financial markets are interconnected. Investors are watching. They’re learning. They’re drawing conclusions. If Japan—with its domestically held debt, its population of savers, and its ultra-accommodative central bank—can no longer keep interest rates low, what does that mean for other countries? For the United States, with its reliance on foreign investors? For Europe, with its political divisions? For emerging markets, with their fragile currencies? The message is clear and troubling. No one is immune. Even rich countries can lose control of their bond markets.

The End of the Era of Free Money

We may be witnessing the end of an era—the era of free money. The era when governments could borrow at ridiculously low rates. The era when central banks could print money without apparent consequences. That era is coming to an end. Inflation is back. Rates are rising. Investors are becoming more demanding. And governments will have to face a reality they’ve ignored for far too long. They’ll have to choose: cut spending or raise taxes. Or accept high inflation that will erode their citizens’ purchasing power.

As I watch this transition unfold, I can’t help but think of all those who will suffer. Retirees who will see their pensions lose value. Young people who will no longer be able to buy homes. The middle class, whose standard of living will decline. All because we’ve been living beyond our means for far too long.

Austerity or Inflation

Governments will have to make choices. Impossible choices. Choices that will hurt. Either they impose austerity. They cut public spending. They scale back social programs. They raise taxes. This is the path of fiscal discipline. It is politically toxic. It sparks protests, strikes, and social crises. But it helps stabilize the debt. Or they let inflation do the work. They continue to borrow. They let central banks print money. The debt is eroded by inflation. But citizens’ purchasing power is destroyed. It’s a hidden but devastating tax.

The Trap of High Debt

The problem is that with public debt levels this high, there are no longer any good options. Every solution is painful. Austerity triggers a recession. Inflation erodes savings. Default destroys confidence. Governments are trapped. They’ve borrowed so much money that they can no longer easily extricate themselves. Every option has terrible consequences. And the longer they wait, the worse the situation gets. Japan is in this trap. The United States is dangerously close to it. Europe isn’t far behind.

What terrifies me is that there is no easy way out. We have created a problem for which there is no painless solution. Someone is going to pay. The question is not if, but who. Retirees? Young people? The middle class? Probably everyone. That is the price of fiscal irresponsibility.

The Return of Inflation Changes Everything

Why now? Why are bond markets rebelling now and not before? The answer can be summed up in one word: inflation. For years, inflation remained low. Central banks could keep rates low without any consequences. But inflation has returned. First, due to disruptions caused by the pandemic. Then because of ultra-expansionary fiscal policies. Now it’s here. And it’s changing everything. With inflation, real interest rates turn negative. Investors lose money by holding bonds. They demand higher yields. Central banks are forced to raise rates. And suddenly, the entire debt pyramid becomes unsustainable.

The loss of confidence is contagious

There’s also a psychological factor: confidence. As long as investors believe a government can repay its debt, they continue to lend. But when doubt sets in, everything can change very quickly. That’s what’s happening in Japan. Investors look at this colossal debt. They see bond yields rising. They see the yen depreciating. And they begin to doubt. This doubt is contagious. It spreads. Other investors sell. Yields rise even further. The spiral accelerates. That’s how debt crises begin. Slowly at first. Then very quickly.

I remember the European debt crisis. How it started with Greece—a small country with a small economy. And then it spread: Ireland, Portugal, Spain, Italy. Suddenly, the entire eurozone was in danger. That’s the danger of contagion. Once doubt takes hold, it spreads like a wildfire.

The Warning We Must Heed

The Japanese bond market is sending us a message. A message we must heed. A message we can no longer ignore. Rich nations cannot rely on debt and monetary intervention forever. There are limits. Limits we are dangerously approaching. Japan is reaching them now. The United States isn’t far behind. What’s happening in Tokyo today could happen in Washington tomorrow. Or in Brussels. Or in London. No one is immune. No one is protected. Fundamental economic laws always prevail in the end. Always.

I wish I could say that everything will turn out all right. That we’ll find a solution. That politicians will make the right decisions. But I can’t. Because I don’t believe it. I look at history. I look at the numbers. I look at the trends. And I see a crisis looming. A massive debt crisis. A crisis that’s going to hurt. Really hurt. Japan is showing us the future. And that future is spine-chilling. The only question now is whether we’ll learn our lesson before it’s too late. Or whether we’ll keep barreling straight into the wall, telling ourselves that this time, it’s different. Spoiler: it’s never different.

Signed, Jacques Provost