Japan's economic strength has been constructed on foundations of cheap borrowing. Now the world's second-largest economy is steeped in debt and questions remain over whether Japan's economic model is sustainable.

Towards the end of last year financial analysts and experts began to notice something happening in Japan.

After two decades of borrowing cheaply from a captive bond market to feed its insatiable appetite for deficit spending, the world's second-largest economy was slipping closer and closer to a catastrophic fiscal crisis as Japan drove public debt beyond the point of no return.

Japan's gross public debt came close to 218 percent of GDP in 2009, and the IMF forecast this will increase to 227 percent by the end of 2010, and 246 percent by 2014. This has been manageable so far only because Japanese savers have been lending for almost nothing. The Japanese government have been actively encouraging such a lending-culture in order to keep the economy active.

Unsustainable of economic policy

But this most unsustainable of economic policies looks to have finally smashed into the wall that has been looming large for some time.

Put simply, Japan's pending "debt trap" will be triggered when the national pool of domestic savings runs out, something that could happen this year if you are to believe people like John Rubino, a journalist for global financial crisis publication, DollarCollapse.com.

If this happens then the Japanese government will have no choice other than to borrow from foreign investors on a huge scale, but these investors are likely to doubt its ability to repay so will therefore demand higher interest rates.

As the billions-of-dollars worth of short-term cash mounts up, interest costs will keep climbing, more borrowing will be needed, forcing investors to demand ever higher rates. Eventually investors will wake up to this damaging, endless cycle leading to an exodus of buyers. Then the economy crashes.

2010 is likely to see Japan switch from deflation to something far more damaging. As put by The Telegraph's International Business Editor, Ambrose Evans-Pritchard, this year could see "the beginnings of debt monetization by a terrified central bank that will ultimately spin out of control, perhaps crossing into hyperinflation by the middle of the decade."

Repercussions felt across the globe

A extremely worrying situation for Japan, the repercussions of which would be felt across the globe.

There are many other factors which are contributing to Japan's peril - such as the fact that the Japanese will also have to run down their holdings of US Treasuries, currently US$750 billion or 10 percent of the entire stock of US Treasury debt, as well as selling a lot of Gilts and Belgian bonds - all of which I could not possibly cover within this article.

Japan seems to have wasted a wonderful opportunity to flex its immense fiscal firepower over the last 20 years. It has thrown a frightening amount of cash at ill-conceived spending projects, and now have very little to show for it.

They have a stable society, but it's also an ageing society which may struggle to help itself when the true horror of its government's massive debt finally hits.

As America collapsed so spectacularly and the dollar became the laughing stock of the global market place Japan began to suffer in silence, but now its secret is out - the country is sinking fast.