Life on Earth May Be Wiped Out By Ravenous Space Goat

There are days when I want to throttle David Pilling's editors.

Today is one of those days.

Japan may axe state debt guarantees
Financial Times

By David Pilling in Tokyo- Published: October 25 2006 22:19 - The Japanese government is proposing to end its guarantee on local government debt in a move that would expose municipalities across Japan to the threat of bankruptcy and their lenders to the risk of default.

If adopted, the proposal could have an enormous impact on about Y200,000bn ($1,700bn) of outstanding local government debt, which lenders currently treat as carrying almost no default risk.

Wow, this would be an extraordinary, shattering development in global finance, with serious implications for Japan's continuing economic expansion, the long-term viability of the LDP, the pace of economic and bureaucratic reform and the policies of the Bank of Japan.

Wouldn't it be even a better story if it were actually something the Cabinet had decided? Or even discussed? Or even dreamt of?

Wouldn't?

It sure would.

Except, of course, the Cabinet has done no such thing.

The proposal comes from the Council on Economic and Fiscal Policy, a powerful policymaking body chaired by Shinzo Abe, prime minister. It is part of a drive to rein in public spending by forcing local governments to take more responsibility for their own spending.

Other proposals include further transfers of tax and spending authority to local governments and reorganising Japan's 47 prefectures into a smaller number of states.

Takatoshi Ito, a professor at Tokyo University and one of four private sector members of Mr Abe’s economic council, said: “This would push the cost of local government borrowing up, so they would have to be more careful. It would bring market pressure and force discipline on local government spending.”

Mr Ito said the change, which is at an embryonic stage and could take several years to implement, would have to be introduced carefully to avoid chaos and mass default. A mechanism similar to that relating to developing country debt would need to be put in place to enable municipalities to restructure debt if they were in danger of default.

So the Japanese central government MAY repudiate its implicit guarantees of local debt...it MAY reorganize the prefectures...it MAY relinquish the power to tax and spend for local needs beyond even the Trinity proposals.

But then again, maybe "Japan" won't.

Ah come on, who cares about the difference between the subjunctive and the indicative, right?

Put all on the front page in scare font! And slap the Prime Minister's name on it for good measure!

Kusabana...