It is Obvious

Chris Rick has got altogether too much to say

Lend me the price of a cup of tea

Posted by chrisrick13 on April 18, 2011

It is obvious: the world runs on debt

I don’t know the provenance but the world debt clock is an interesting page: http://www.usdebtclock.org/world-debt-clock.html.  (It’s sister, the US debt clock is a scary one.)  It is simple.

The rule of thumb is that with a debt of about 85% of GDP a debt-default spiral starts.  This is when the country cannot afford to maintain the loans to it.  There is a desperate scramble to cut spending and increase taxes while maintaining economic activity to generate the money to pay loan interest and reduce the debt.  Below 85% it can be done provided that there is an economy that does useful stuff and can generate income.  Above that a default is almost inevitable.

There is an exception to this which is Japan.  It borrows nearly all its money from its own population and can therefore run a much bigger debt.

Beware the provenance of this page.  Also beware debt that the country is hiding.  Greece did it…but got found out.  The UK is doing it, everyone knows it is, few seem to care – at the moment.

Going down the list and Canada looks perilous at 82%, but watch the clock, it is slowly reducing.

Passing quickly over China at 17% and reducing you arrive at UK at 78% and rising very nicely.  Cuts?  What cuts?

Then comes France at 85%.  Hold on there.  When eurozone finance is mentioned France is never proposed as a basket case, but on this measure it sure looks like one.

Germany is at 75% and not moving.

Ireland 114% – yawn, but going up very fast.  Italy 118% and edging up.  Portugal 85%.  Spain 66%.

The US 71% and rising fast.

These numbers do not tell the whole story, how can they, but they do indicate.

On my measure, apart from mosquitoes, Canada looks pretty good.

Totalitarian states and third world countries also look good bets.

It is obvious: the world runs on debt, I wonder where everyone is getting their money from?

One Response to “Lend me the price of a cup of tea”

  1. Bill said

    Interesting and worrying. You are right about France – right on the of the 85% – and it always gets portrayed as one of the two rocks on which the Euro is based…

    All these 3rd world & South American countries that are needing debt restructuring etc. are actually better placed than us. I wonder if this tells the whole story and what’s the final column mean (if anything)?

    Our external debt to GDP looks super-bad…

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