MICHELE NORRIS, host:

This week, Japan faced yet another economic humiliation. Standard & Poor's, the credit rating agency, downgraded the country. The agency said it's worried about Japan's long-term ability to pay back its debt. Adam Davidson of NPR's Planet Money team explains why this concerns American policymakers.

ADAM DAVIDSON: If you happen to run into Treasury Secretary Tim Geithner or the chair of the Fed, Ben Bernanke, and for some reason you want to terrify them, just start talking about Japan's economy. Frankly, you should probably feel afraid when you hear about Japan's economy.

You know, it's this major world economic superpower, it got into a financial bubble, the bubble popped, and 20 years later, the country still can't seem to get itself back on track.

Here's a statistic: In 1995, Japan's economy was seven times bigger than China's. Since then, China's economy has grown a lot. It's now bigger than Japan's, and Japan's economy has actually shrunk. That just doesn't happen with major developed countries.

But as its economy was shrinking, Japan's government spent like mad. Its debt is now two times as big as its economy, its GDP. Debt twice your income is tough for a person, but for a country, it's almost unthinkable. There's only one country in the world in worse debt shape: Zimbabwe.

Those highly indebted countries you keep hearing about, the ones causing global crises like Greece and Ireland, their debt burden is way smaller than Japan's. And the future does not look so bright. Japan's population is unhealthily tilted towards older people. So they have to think about huge pension payments in the coming decades.

Now, investors are still lending lots of money to Japan at reasonable rates. The country does not seem to be on the brink of an acute fiscal emergency. But at the same time, it doesn't seem likely to break out of its long-term, chronic economic illness.

If all of this sounds a bit eerie, a premonition of where the U.S. might be headed, there's reason to be concerned and some reasons not to be so worried. The U.S. certainly has an increasing debt burden, but it's nowhere near Japan's or Greece or Ireland's or many other countries.

The U.S. economy is growing, slowly but much faster than Japan's, and while we certainly have all those retiring baby-boomers coming, we're not as tilted towards the old as Japan is, especially since we're far more open to immigration.

The standard view is that it took an awful lot of really bad decisions by Japanese government and central bank officials to get where they are today. Let's hope that Japan to the U.S. is kind of like Lindsay Lohan to the casual drinker: not an inevitability, more of a cautionary tale of where things can go when they get out of hand.

Adam Davidson, NPR News.

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