<p>The Japanese government has accumulated enormous government debt. Nevertheless, as the government debts of large economic powers such as Japan are riskless assets, this situation may pose little risk. Government debt is likely to be a “risk asset” in the case of a country with an irresponsible government and a fragile economy. Japanese government debt also may become a risk asset because the Japanese economy has suffered from a prolonged recession since the collapse of the bubble economy. Thus, the “lender’s risk” associated with a government debt should be considered. The main purpose of this study is to examine the financial instability, cycles, and effects of a countercyclical fiscal policy using a macrodynamic model that incorporates the debt burdens of firms and governments. As one principal result, our model demonstrates that a countercyclical fiscal policy may not be able to stabilize the dynamic system if the growing government debt induces households to restrain their consumption or hold money rather than government bonds. We believe that the credibility of the government debt is quite significant.</p>