Best of the Week
Most Popular
1.BrExit House Prices Crash, Flat or Rally? UK Housing Market Affordability Crisis - Nadeem_Walayat
2.Stocks Bull Market Climbs Wall of Worry, Bubble? When Will it End? - Nadeem_Walayat
3.Gold Price Is Now On Its Way To All-Time Highs - Hubert_Moolman
4.Deutche Bank Stock Price Crash - The EU Has Problems Far Beyond the Brexit - Harry_Dent
5.UK interest Rate PANIC CUT! As Banks Prepare to Steal Customer Deposits - Nadeem_Walayat
6.Gold and Silver Bull Phase 1 : Final Impulse Dead Ahead - Plunger
7.Central Bankers Fighting An Unprecedented Global Economic Slowdown - Gordon_T_Long
8.Putin Hacking Hillary for Trump, Russia's Manchurian Candidate? - Nadeem_Walayat
9.Stock Market Insiders Are Secretly Selling, Cycle Top Next Month - Chris_Vermeulen
10.Gold Sector - Is it time to Back up the Truck? – Mortgage the Farm? - Peter_Degraaf
Free Silver
Last 7 days
Stock Market - All Is Calm, All Is Not Right - 27th Aug 16
Gold Junior Stocks Q2 2016 Fundamentals - 26th Aug 16
Buy Gold’s August Dip? Gold’s Monthly Sweet Spot In September - 26th Aug 16
The IMF’s Internal Audit Reveals Its Incompetence and Massive Rule Breaking - 26th Aug 16
Commodities Are the Best Bargain Now—Here’s What to Buy - 26th Aug 16
Why I Left Canada and Became A Citizen of the Dominican Republic - 26th Aug 16
The GLD vs GOLD - 26th Aug 16
Can Stocks Survive Without Stimulus? - 25th Aug 16
Why Putin Might Be on His Way Out - 25th Aug 16
Bond Guru Gary Shilling - The Bond Market Rally of a Lifetime - 25th Aug 16
A Zombie Financial System, Black Swans and a Gold Share Correction - 25th Aug 16
OPEC’s Output Freeze: What Has Changed Since Doha? - 25th Aug 16
Merkel Prepares For a Deliberate Crisis While White House Plans For a Disastrous Succession - 24th Aug 16
Suspicious Reversal in Gold Price - 23rd Aug 16
If Trump Can’t Pull Off a Victory, Expect a Civil War - 23rd Aug 16
Ceding ICANN and Internet Control to Globalists - 23rd Aug 16
How to Spot an Oversold Stock Market - 23rd Aug 16
Gerald Celente Sees Worst Market Crash, New Military Conflict, Gold Spike to $2,000/oz - 23rd Aug 16
EU Olympics Medals Table Propaganda Includes BrExit Britain - 22nd Aug 16
BrExit Win's Britain Olympics Success Freedom Dividend, Economy Next - 22nd Aug 16
Stock Market Top Forming, but Slowly - 22nd Aug 16
(Really) Alternative Banking Systems - 22nd Aug 16
Vauxhall Zafira Fires - Second Recall Issued - Inspection Before Bursting into Flames? - 21st Aug 16
Will the Stock Market Bubble Pop Regardless if the FED Never Raises Rates? - 21st Aug 16
US Government Spending - 3 Big Stories Not Being Covered – Part III - 21st Aug 16
Silver Analysis - 20th Aug 16
SPX New Highs, Correction Next? - 20th Aug 16
Housing Bubble - The Marginal Buyer Holds The Pin That Pops Every Asset Bubble - 20th Aug 16
Gold Miners Q2 2016 Fundamentals - 19th Aug 16
Which Price Ratio Matters Most in a Fiat Ponzi? - 19th Aug 16
Big Policies, Bigger Failures - 19th Aug 16
Higher Crude Oil’s Prices and USD/CAD - 19th Aug 16
Here’s Why You Should Look for Dividend Stocks and How - 19th Aug 16
Deglobalization Already Underway — 4 Technologies That Will Speed It Up - 19th Aug 16
These 6 Charts Show Why the Average American Is Fed Up - 18th Aug 16
SPX Easing Lower - 18th Aug 16
Low / Negative Interst Rate’s Legacy - 18th Aug 16
The 45th Anniversary of The Most Destructive Event In Modern Monetary History - 18th Aug 16
USDU - An Important Perspective on the US Dollar - 17th Aug 16
SPX Completes Wave 1 Decline - 17th Aug 16
How to Quickly Spot Common Fibonacci Ratios on a Chart - 17th Aug 16
When Does a Forecast Become a Trade? - 17th Aug 16
Kondratiev Wave - The Financial Winter Is Nearing! - 17th Aug 16
Learn "The 4 Best Elliott Waves to Trade -- and How to Trade Them" - 16th Aug 16
Stock Market Bears Turning Bullish At New All Time Highs - Time to Get Worried? - 15th Aug 16
Job Seekers Sacrificed to the Inflation Gods - 15th Aug 16
A Look At Commodities and Financial Markets Trading Week Ahead - 15th Aug 16
Stock Market New Top Forming? - 15th Aug 16

Free Instant Analysis

Free Instant Technical Analysis


Market Oracle FREE Newsletter

How to Trade Elliott Waves

World Sovereign Debt Map

Interest-Rates / Global Debt Crisis Oct 01, 2010 - 03:46 AM GMT

By: Seth_Barani

Interest-Rates

Best Financial Markets Analysis ArticleDebt creates problems. It is seldom known to solve problems, especially in the long run. Countries with high debt are vulnerable to currency weakening as debt drives assets out of those countries towards low risk, high yielding countries.


Here is an easy reference to sovereign debt of countries in the world. A simple color-code has been used, where red denotes public debt per capita over $10,000, yellow denotes debt per capita between $1,000 and $10,000, and finally, green color denotes debt per capita under $1,000. The color-code may be a bit deceptive in borderline cases where the debt is close to $1,000. The data for a couple of countries are a bit old (e.g. 2008). The map should only be used to gain some idea into the big picture but not for cherrypicking potential investment destinations.

An interesting pattern emerges from the color-coding. There is some connectivity between countries with similar color! It shows that the pattern of government borrowing/spending may have some cultural underpinnings.

Red States: Most of these are ultra-capitalist nations and are economically and politically close to United States. Did these countries assume that US would lead their way in borrow-and-spend voodoo economics? Japan leads the show with nearly $78,000 per person. This is just the sovereign debt. We haven't even delved into consumer/commercial debt. On yearly basis the US per capita debt grew fastest (from $15,000 to $28,000 in a few years), but per capita debt for some other countries (e.g. Norway, $55,000) are way higher than USA.

Yellow States: The south American nations do not seem interested in drinking US binge. China is close to crossing the $1000 milestone and may turn yellow quite soon. East European nations and Russia are also somewhat fiscally sensible.

Green States: Other than India, many of them are in Africa with low GDP, low debt, but rich in resources. Unfortunately, most of the African nations are kept in perpetual conflicts by arms supplied by some Red and Yellow States.

One may argue that governments spend more because of the catalysis given by higher GDP. I would argue the reverse - higher government spending is reflected in an artificially elevated GDP. The recent 'stimulus' in US aimed at propping up the GDP is one such example. Further, the belief that higher GDP may service the sovereign debt is only half-valid. GDP must combine with low tax rates to have a better chance of surviving the debt.

Question: Which countries have low debt/GDP ratio?

We didn't include Japan in the chart because it will cast a shadow on other countries. Japan is in a terrible shape with nearly 200% debt/GDP and one wonders how long will it be before its ratings are downgraded.

From the above chart one can see that Russia has aggressively cut down the sovereign debt vs GDP ratio from almost 90% to 20%. China and Australia also have performed well to keep a low ratio. USA is not badly placed being in the middle order along with India but we haven't included the intragovernment borrowing (e.g. from Social Security Trust) for US data. If the intragovernment borrowing is included, the ratio would be close to 90% instead of the 60% shown in the graph. Across the Atlantic, UK, France and Germany are outdistancing themselves from others and knocking at the 100% mark. Some interesting countries not included in the chart are (a) Saudi Arabia that has significantly cut down its public debt, but perhaps mainly from its oil revenues (b) Belgium, which has been near the 100% mark most of the years (c) Iceland whose debt grew fast from 43% to 115%, (d) Iran whose debt decreased from 30% to 18%, (e) Italy always above the 100% mark - congrats! (f) Romania seriously working to reduce the ratio with high fiscal responsibility.

As mentioned earlier, debt servicing is easier if the tax rates are low, since there is room to increase the taxes. From that perspective, countries with high tax rates are Belgium, Germany, Denmark, France, Italy, Finland. Lower rates prevail in Australia, China, India and Russia. Japan, UK and USA also have some cushion left before they can catch up with European nations on tax rates. Thus, one can surmise that while Japan, UK and USA may resort to increasing taxes, EU nations will be forced to accept austerity. When the average American is forced to deleverage his debt, Uncle Scam will be actively monitoring his bank savings account and at the very first sign of improved personal savings his taxes will be hiked. Note: Kicking and screaming to austerity still will not result in any retirement savings for Americans!

The combination of per capita debt, debt/gdp and the tax rates show that countries like Russia, China and India have low debt per capita, low taxes and low debt/GDP ratio. Australia, while it has low debt/GDP ratio and tax rate, it has a high per capita debt. The EU-US belt is both high in per capita debt and high debt/GDP ratio and without much room left for additional taxation. We anticipate that Belgium will soon be renamed as BellyUpGium, owing to its high debt, high per capita debt, high debt/gdp ratio and very high tax rates.

    Author Seth Barani is a PhD in physics and is a freelance capital market researcher and trader. He can be reached at s.barani@gmail.com.

    © 2010 Copyright Seth Barani - All Rights Reserved
    Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2016 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

Catching a Falling Financial Knife