The World’s Largest Debts: How Severe is The American Debt? Does It Matter?
America are being joined by country after country, all announcing details of very public struggles with their very public debts. How does the rest of the world’s debts compare to the US? Is this fiscal Armageddon?
The public debt of the United States of America has passed 14.6 Trillion dollars. This figure has risen from 8.6 trillion in 2010 – from one inconceivably huge amount of money, to an even more inconceivably huge one in less than a year. I was asked which countries have more debt than the USA, surely the world’s recent sole-superpower can’t have the largest debt in the world?
It’s a tricky question, with a not altogether easy answer. America, looking at the sheer scale of the debt do rank highly. The sheer scale of the country’s debt is only really comparable to Japan – fired by their own recession in the 90’s to $12.3 trillion as of the 2010 figures. There’s a 10 trillion gap between these two countries and the next 3 most indebted countries, with the European triptych of France, Germany and Italy each with between 2 and 3 trillion dollars debt.
These numbers are enormous, record-breaking, no doubt, and almost completely meaningless.
The Quantity of GDP
The hysteria surrounding these headline grabbing numbers is often without much context. For instance, a man earning $15k p.a. owing the $5/The cost of a beer to a friend in a bar is not the same as owing that 5000 dollars he borrowed. Equally, that $5000 would mean next nothing to Rupert Murdoch, with his $7.6 billion net worth. These debts are more useful when thought of as a percentage of a countries gross domestic product, contextualising the debt both internationally and internally.
Putting the American debt into this context (considering that many of figures above are based on data released in 2010 and could possibly have gotten worse) makes it seem not as catastrophic as it may have done than by just total liability. While Japan is an extreme case and Zimbabwe and Lebanon special cases, the likes of Italy and Germany (Public debt 78.8% of GDP) have been lauded as countries dealing well with the current economic climate.
It’s worth noting that even during the 1997-2006 period of relative prosperity, Germany had a public debt of 64% and USA had an average public-sector debt of 61%. In the period following World War Two the UK Public debt was 2.7 times GDP – The World didn’t end, not even the country ended – they were surmounted not by drastic methods by simple growth and simple inflation.
The Debt Delusion
It seems that this current self-flagellating obsession with debt is something of a red herring. While the size of the national debts is unprecedented the scale is not, and these black marks against a countries financial capability may not be as terminal as is made out. Mehdi Hasan wrote about the panic about debt in the UK during August 2009 under significantly less severe circumstances, the observations and quotations hold. Even the credit agencies ratings have little to no effect, nor do they have much integrity under scrutiny.
Rather than thinking of these debts as being owed to some lunatic International-loan-shark who may demand the entire sum at any moment, these debts function more as a loan or a mortgage taken out on one’s first house – There’s the eventual repayment and the interest payments. These debts are not owed to a single place, with a single repayment on a single date – they are spread over sources, over payments, over time making them a lot more easy to manage than many people’s mortgages.
The debt may seem to be ever growing, but the debt exists for a reason and will reduce naturally. The point of debt taken out of by a nation’s government is to put it into their people, spending money putting them into productive and satisfying work at a time when the global economy fell into recession. These debts are largely investments into a countries economic future, investments into their people and their long-term prosperity. The return may not be now, or even soon, but it will come – And as English historian Lord Macauley said of the UK’s debt: “At every stage in the growth of that debt it has been seriously asserted by wise men that bankruptcy and ruin were at hand. Yet still the debt kept on growing; and still bankruptcy and ruin were as remote as ever.”
Note: Tables largely compiled using 2010 data available from the CIA world fact-book. American data as of July 2011.
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