Debt to GDP: Only 4 Major Countries Worse Off Than the US

Of major nations, only Japan, Greece, Italy, and Portugal have debt-to-GDP ratios higher than the US.

With the new tax overhaul, U.S. government debt will rise by one to two trillion dollars over the next decade. I view that assessment as majorly optimistic as it assumes no recession and unlikely growth.

Citing IMF statistics, the Wall Street Journal reports Just Four Large Countries Have a Higher Debt Burden Than the U.S.

Japan’s government carries debts at 240.3% of gross domestic product, far and away the world’s largest burden. Japan has struggled in recent decades to tackle its debt, in part because its economy has been stagnant. Attempts to raise revenue via higher taxes have often knocked the economy into recessions. Tax cuts haven’t generated enough growth to ease debt burdens.

The Bank of Japan has embarked on the world’s most aggressive monetary policies, including decades of rates near zero, and the world’s largest asset-purchase program. None of it has revived growth or inflation, meaning Japan’s debt burden has been slowly grinding higher. (Although the low rates have meant the costs to the government of servicing that debt have remained under control.)

Japan’s government debt has been a persistent fiscal challenge, but never quite blossomed into a full-blown crisis.

The next three nations haven’t been so lucky. Greece’s debt-to-GDP stands at 180.2% of GDP, Italy’s at 133% and Portugal’s at 125.7%. When the global financial crisis struck, and government revenues plunged around the world, Greece and Portugal found themselves unable to manage debts on their own. Both nations turned to international bailouts to make it through the years of weak growth that followed. All three nations have had to bail out some of their largest banks in order to keep their financial systems from collapsing.

All three have also turned to painful budget cuts in an attempt to control their debts’ rise. Some have argued these austerity measures, however, often backfire. Cutting pensions and government employees might relieve long-term debt, but do so at the cost of additional joblessness and economic stress.

All three nations are part of the eurozone, which like the Bank of Japan has kept rates low and engaged in large stimulus programs. But unlike Japan, the three highest-debt European nations do not directly control their own currency.

As recently as 2001, the U.S. debt for the size of its economy was 93rd out of 169 nations ranked by the IMF that year. By 2008, the U.S. debt had risen to 23rd out of 184, thanks to a combination of factors including a recession in 2001, the start of the global financial crisis in 2007, a pair of massive tax cuts in the early 2000s that did not produce the hoped-for growth benefits, and two expensive wars.

Path of Japan

The Fed and the ECB followed Japan with massive Quantitative Easing programs. It did not help Japan nor Europe where a crisis in Italy can blow the Eurozone up at any time.

Results in the US are debatable, at least until the bubbles blow and the next financial crisis hits.

Since the policies fail, why do all the central banks use them?

The conspiracy theorists will tell you this is all part of a plan to steal from the poor for the benefit of the top one percent or perhaps the top 1/10 of one percent.

Occam's Razor suggests they are stupid fools engaged in group-think, and they don't know what else to do.

Currency Crisis Awaits

Japan has proven a country can kick the can far longer than anyone thought. Europe is a different matter where countries do not have control over their own currencies.

A global currency crisis awaits. It could start anywhere but my three top candidates are Italy, Japan, and China.

I include China because of the immense amount of debt it takes for China to meet its 6% growth targets, its capital flight problem, and because no one in their right mind believes China's GDP numbers in the first place.

By the way, if Italy blows up, Germany will be the biggest loser.

Mike "Mish" Shedlock

Comments
No. 1-18
Hooligan
Hooligan

here's a happier thought.. how about we see the value of assets on the other side of the governments balance sheet - to include the value of existing road, rail and air infrastructure plus the value of social infrastructure like schools, hospitals etc. military infrastructure is a little more dubious as "value". as I have mentioned before, 1.5 trillion in tax cuts is just 5% of the ten year total tax take of the thirty trillion in taxes that will be taken, and a tiny fraction of the 200 trillion in gdp over ten years. we are in the area of big numbers now.

Hooligan
Hooligan

on the negative side, government spending cuts in greece and italy are necessary to reap ONLY THE INTEREST on debt. Japan (and China probably) are toast. Japan cannot afford the interest rate that goes along with 4% nominal GDP growth. China simply does not know what to do - it has no experience or expertise in handling large numbers which are actually real, not made up.

Hooligan
Hooligan

germany has a huge problem. it has promised massive pensions based on the false assumption that the wealth it has generated from exports is protected within the EU. it isn't, it has been "donated" to profligate (drunken sailor) socialist libtards that have borrowed all future taxes to pay for stupidity and the welfare state. the US suffers from this theft by socialists also, though again on the dark side, libtard socialists in the US want only to dum down voters by beggaring the education system with gangs of trade unionized tenured teachers, that allow kids to skip class and still get passing grades. there is a way forward though. a return to the protestant, christian, work ethic, the rejection of islam and the recognition of value, not fiat.

Hooligan
Hooligan

happy new year!

JonSellers
JonSellers

As noted conservative Dick Cheney said: "deficits don't matter". Nobody has the authority to penalize the federal government for overdrawing its accounts. So it does. Always. So the deficit can go to whatever you want it to, and the government will always just pay it by going ever deeper.<p>The real problem it creates is moral hazard. It allows the federal government, in the name of the people of the United States, to murder innocent women and children throughout the middle east. It allows the federal government to bail out the oligarchy's banks when they make bad bets. It allows the federal government to pay exorbitant rates to health industry institutions, and put our college students in egregious amounts of debt.<p> And most importantly, it allows our politicians to make horrible decisions without accountability.