The sovereign debt crisis won’t lie down.

Kenneth Rogoff is one of that select band of economists who can make a genuine claim to have predicted the banking crisis.

He, along with Carmen Reinhart, penned one of the better books on the economic crisis – This time it is different. And the duo have also produced research suggesting that whenever government debt passes 90 per cent of GDP, then growth starts to fall quite rapidly.

Now Mr Rogoff has only come along and made another prediction of doom.

Speaking at an IMF forum, he said that after a banking crisis “We usually see a bunch of sovereign defaults, say in a few years. I predict we will again.”

He said: “It’s very, very hard to call the timing, but it will happen. In rich countries – Germany, the United States and maybe Japan – we are going to see slow growth. They will tighten their belts when the problem hits with interest rates. They will deal with it.”

He reckons it will be the tiddlers which will have the crisis. As rates rise, some countries will find the interest payments on these debts unaffordable.

He focused his warning on the likes of Greece and Portugal, leaving unclear whether he reckons the UK will be in the US–Germany camp – big enough to cope – or the small fry camp.

Meanwhile, Capital Economics turned its attention to Japan, and asked: “Will Japan be the next Greece?” First of all it expressed the case for Japan joining Greece on the naughty list, namely its huge levels of government debt, which as a percentage of GDP actually dwarfs Greek debt. But then it went on to say that while Japan has big debts, it has massive assets too. Its current account, unlike in Greece, is in surplus, meaning it exports more than it imports, and besides, Japanese consumers have saved en masse.

But what keeps being forgotten is that Japan has this burgeoning population problem to deal with. It won’t be the most seriously afflicted, but it will witness one of the most serious of all demographic challenges. According to the Population Reference Bureau, by 2050 there will be 26 million fewer people living in the land of the rising sun than today – that is a fall of 26 per cent. Europe will see its population over the same time period fall by 0.7 per cent, with some countries obviously more badly afflicted than others.

How a falling Japanese population will be able to cope with such enormous levels of debt, is a puzzle. In Europe, the countries with the biggest problem include the emerging economies of the former Soviet Union, along with Sweden, Switzerland, Austria and Germany.

They keep saying that the Germans and the Japanese are better placed than the UK because their consumers have saved so much more. But maybe the reason for this is because the populations in these two countries are on average older, and that they have to save more.

The real sovereign debt crisis will occur in a decade or so from now, as the effect of the ageing population really starts to take its toll.

© Investment & Business News 2013