Japan is up the creek without a paddle. It’s pretty remarkable to hear a Bank of Japan governor saying things that some aggressive hedge-fund guys have been whispering for a while now.

The Japanese political leadership have no ability or desire to cut down on deficit spending. They’ve now gone through most of the past 18 years trying to spend their way out of economic weakness, and they’re deficit-spending big again this year. It’s almost pathetic to hear the BoJ saying that deficits should be for emergencies only.

So now they have a debt load that is 200 percent of GDP. (Ours is now about 50% of GDP and growing fast as lightning. It was about 40% a year ago.)

Japan are financing their debt on the backs of the country’s citizens, who like most Asians tend to save a double-digit percentage of their income. We’re currently saving a bit less than 5%, and have nothing like the savings reserves the Japanese have.

They can keep this up for quite a while longer, but they no longer control their own destiny. If they should ever be forced to pay a higher rate of interest on their public debt (which would happen if Japan’s savers decide they want more than a microscopic return), Japan would be screwed. Their debt payments could easily be larger than their entire current government budget.

Let’s say the US public debt goes from $7.5T now to maybe $16T or more after eight Obama years. Assuming no tax changes and a yield curve that looks like that of early 2007, we’d be paying more in interest than total receipts from the personal income tax, maybe $800 bn a year. That’s also bigger than DoD, and bigger than TARP. (Today’s number, with zero short interest rates, is more like $200 bn.)

That’s the kind of nightmare Japan would face today if yen interest rates were to rise. Japan is in the worst shape, but they’re not unique. Other developed countries, notably in Europe, are facing less-bad versions of the same problem.

Markets can see this coming. The US Treasury yield curve has been steepening. The 10-year note rate traded over 3.70% yesterday.