Tuesday, November 23, 2010

'Til Government Debt do us part

There has been heavy coverage in the mainstream media in recent days, weeks and months about the debt crisis facing the European Union.  I thought I’d put everything into perspective by looking at the debt levels of the countries comprising the G8, the economic glue that binds the world.

For the purposes of this posting, I went directly to the source material for each government.  For example, if you click on the debt level, you will link directly to the source of the data be it the United States Treasury Department or Japan’s Ministry of Finance for example.  I did not rely on data taken from media sources except for the population of Germany since their up-to-date population data was not available online.  Please note that there may be some slight and inadvertent inaccuracies (keeping in mind that I don’t get paid to do this research) but I’ve tried to find the most recent data available.

Here is the debt information (converted to USD for comparison’s sake) from internal government documentation:

United States debt:  $13,789,699,194,529.33 (Nov. 19, 2010)

Great Britain debt:  £955 billion - $1.52 trillion (Oct. 2010)

Japan debt:  741.3 trillion yen - $8.881 trillion (Sept. 30th, 2010)

France debt:  1591.5 billion euros - $2.166 trillion (Q2 2010)

Italy debt:  1520.87 billion euros - $2.0699 trillion (Q4 2009)

Germany debt:  1096.811 billion euros - $1.4928 trillion (Sept. 30, 2010) 

Russia debt:  $456.06 billion (June 2010)
                    
Canada debt: $582.472 billion - $592.96 billion (2009 - 2010) 
                   
Let's look at population of each of the G8 countries taken from government data sources (other than Germany):

United States:  310,764,645

United Kingdom: 61,792,000 (mid-2009)


France:  64,667,374

Italy:  60,340,328

Germany:  82,110,097

Russia:  139,390,205

Canada:  34,108,800

Now let's look at per capita debt keeping in mind that the debt is evenly divided between every man, woman, child and infant:

United States:  $45,697

United Kingdom:  $24,599

Japan:  $69,715

France:  $33,494

Italy:  $34,304

Germany:  $18,180

Russia:  $3,272

Canada:  $17,384


Just in case you were wondering, Ireland has 4,470,700 residents and a debt of $102 billion.  That calculates out to $22,815 per capita, right in the middle of the pack.

I realize that most economists like to compare debt to GDP.  To me, that concept is somewhat nebulous and abstract and the debt to GDP data tends to vary widely based on the source used.  As an individual, I can relate better to the per capita debt data because it tells me what portion of the sovereign debt is “connected” to me.

From the per capita debt data, we can see that Japan, as noted in this posting, is in a tough position, especially since the country has a shrinking population.  Even if no more debt were added, the per capita debt level will rise.  The United States is in bad shape as well, followed by Italy and France.  By this measure, the United Kingdom, Germany and Canada are in relatively good shape and Russia appears to be the bastion of economic prudence (see the next paragraph).

As an aside, Russia has foreign currency reserves of $17.264 billion in its Reserve Fund and $31.855 billion in its National Wealth Fund which together comprise Russia's Stabilization Fund.  Let’s not forget, however, that Russia defaulted on its sovereign debt in 1998 throwing the world’s economy into turmoil.  The country’s debt to GDP level now stands at about 5% of its GDP.  For interest’s sake and by comparison, from its own Department of Treasury data, Italy's debt is now 115.8 percent of its GDP and from France's National Institute of Statistics and Economic Studies, its debt to GDP level is now 82.9 percent.

What really annoys me off about the rapid accrual of sovereign debt is that no finance minister, prime minister, premier or president ever talks about paying off the debt.  Certainly, there are vague promises that governments are working toward deficit reduction at some point in the future but generally, even the most optimistic of prognostications suggests that balance will be reached some four or five years into the future.  I don't think that it's my imagination, but that four or five years seems to slide forward every year like a carrot dangling in front of a horse.  It also seems more than coincidental that balance will take place after the next election cycle.

As voters, we need to hold our governments and those we elect to office responsible for decades of mismanagement and, should they break their promises to balance government spending with tax revenue, we need to turf them from office at our earliest convenience and replace them with someone who might, someday, actually keep their promises.  An unfortunate side effect of inaction is the hardship that future generations will face; the world, for them, is going to be a far different place.

13 comments:

  1. Spot on!

    Politicians created an artificial prosperity to buy our votes. Now they want to try and keep it floating out there so that we don't turn on them. But to do that they just incur more debt and hope inflation will magic away old debt and old spending. Difficult when you are also trying to hold inflation down.

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  2. Good article...but I given up on my home country (US) ever paying off its debt. It's default, either via inflation or collapse. Until then the the gov will attempt to 'kick the can down the road' for as long as possible.

    As for me, I've given up any 'traditional' investment/savings plan. These days its all about hard assets with as little as possible in paper assets ... 'cause paper is going bye bye.
    There's just too much paper claiming to back an increasingly finite amount of 'things'.

    Actually this delay before the SHTF is welcome as I'm busy as a beaver in preparing for a world that's going to be an absolute, mind blowing shock to 95% of the US public.

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  3. Canada provinces have debts to. Add those in and Canada has a much more debt per capita.

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  4. When comparing public debt between countries it is very important to include all public debt (federal, provincial/state, and municipal). This is the only way to make an accurate comparison, as there are vast differences in how countries structure their finances. A perfect example is health care, in many countries it is a federal responsibility where in Canada it is provincial responsibility with some federal funding.

    You might want to start at: http://www.fin.gc.ca/frt-trf/2010/frt-trf-1008-eng.asp#tbl51

    Which lists our total liabilities as $1.64 billion or about 3 times what you use and in line with the U.S.A.

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  5. Sorry, make that $1.64 trillion - but what's a few zero's between friends.

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  6. To whom is all this debt owed?

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  7. Each other - so it cancels out????!!!

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  8. ?Impact

    I know, it's really difficult to pin these numbers down and Canada's debt is one of the hardest. I've just been using what government's advertise on their websites but have no way of checking the veracity of what they say. As well all know, accountants can make numbers dance pretty much any way they want and government accountants are no different.

    Thanks for the link.

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  9. Properly understood, state deficits are a necessary and benign feature of fiat money systems.

    The problem is that the vast majority of people think about them within an inappropriate mental framework.

    For further information:

    http://moslereconomics.com/

    http://bilbo.economicoutlook.net/blog/

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  10. Perhaps the real problem is fiat currency?

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  11. Spot on!
    Your blog is probably one of the best out there.
    2 Questions:

    1. I saw this graph below and as far as I understand around 50% of the debt of troubled countries is in the hands of Germany, UK and France. roughly $1.5 trillion (which makes it very sensible to give them bailout so they wont default). Cant they just restructure the debt to make it more sustainable?
    http://www.nytimes.com/interactive/2010/05/02/weekinreview/02marsh.html

    2. On the pessimistic scenario of domino effect default in europe (if the PIGS go down, they all will as their budget comes from getting their loans back)...did it ever happen?

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  12. These numbers are totally useless.
    concentrate on %GDP, what has to be rolled over and when.

    The UK has a lot of long term debt and while in the next 2 years $10trillion is required globally for debt, the UK is near the best in %gdp terms - better than Germany even.

    Only Australia and a few scandinavian countries are in a better position and they are small economies with small currencies so cannot borrow so much in the first place.

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  13. Russia's dept is not 5% of GDP, it's maybe near 50%. Make new calculations.

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