Top 6 National External Debts

Sovereign debt as a % of GDP can be misleading. GDP can be misleading; it does not distinguish consumerism from production. So nations with a high GDP but with a primarily import economy may have a harder time paying off their sovereign debt. And so here are the top 6 countries when it comes to external debt.

Now a word of warning, this list is equally misleading, because it does not take into account debts owed to the country in question nor overseas assets and it includes private debt as well. So it is more of an analysis of the economy of the country as a whole in terms of production vs consumption.

6. Japan

I was going to make this another top 5 but when I saw number 6 on the list I couldn't help myself. The cause of their $2,246,000,000,000 USD debt is the same reason for its public debt, their boomer generation has grown old and now consumes much more than they produce.

5. Netherlands

I have no idea why Netherlands is on this list with a debt of $2,344,296,360,000 USD. I did a little bit of digging and the Dutch economy is strong, in fact they have a trade surplus. Each year their exports earn a lot more than their imports. That said the Netherlands does have a nice hefty 62.7% public debt by GDP but this is less than half a trillion dollars. It could be explained by the trade side of their economy. Typically trade economies have a large amount of both creditors and debtors and this may have skewed the figures.

4. France

With the second largest economy in Europe, France is number 4 on the list with a debt of $4,698,000,000,000 USD. While France does have a large economy, it has has a large trade deficit. French imports exceed exports and let's not forget their whopping large public debt (~1.6trillion USD)

3. Germany

 Germany has the largest economy in Europe and has an even bigger external debt than France. Like the Netherlands, it is puzzling to see Germany on this list because Germany has a marginal trade surplus. Some of this is undoubtedly due to Germany's large public debt of approximately ~2.5 trillion USD. Germany's external debt is $4,713,000,000,000USD

 2. United Kingdom

 In second place with an external debt of $8,981,000,000,000USD is mother England. So how did the UK claim it's rightful place as number two? Britain had it's hey-day back in the colonial era where it made a tonne of cash by exploiting the colonies and this got even more lucrative with the industrial revolution. One particularly large trade triangle was between Africa and the US. Slaves were shipped over to America from Africa by British trading ships and then the US would ship basic foodstuffs and raw materials to Britain who would then make manufactured goods and ship it back to America.

Unfortunately for Britain, after the American Civil War, the US had its own manufacturing industry and it was booming. Britain could not compete with it.

Another source of income for Britain was colonial debt. When England colonized places like Australia they gave the colony the bill to pay for their big investment in colonizing the place. The colonies have been paying off their debt since.

In World War 2 though, Britain borrowed a lot of money from the US to keep their war effort going. After the war, the US used this debt to pressure. England into giving up her precious colonies. Ever since, the UK has been an import economy and has been racking up debt.





And the WINNER is..................................

1. The United States of America. That's right, The US is still number one when it comes to gross debt. Back in September 2010 the US debt ascertained the lofty height of $14,392,451,000,000 and it is only growing larger. Why is it so high? Partially because of it's public debt but also due to it's economy as a whole. The US, like the UK, had it's peak but now its manufacturing industries have long since died to the Asian markets. The US is now an import economy and is losing money. Remember how I said in my last post that the US could pay off it's debt? I take that back. How do you pay off a debt when the nation's GDP is all imports?


So to my American audience, be proud. You are still number one!

Top 5 Sovereign Debts (by % of GDP)

Struggling with your home mortgage? Having a hard time paying off that last credit card bill? Or maybe that car loan is getting you financially bogged down. Well, you ain't got nothing on these 5 nations...

5. Greece

Like the US, Greece had a financial boom in the naughties but then crashed in 2009 and it's GDP has been falling since. Is this the reason for it's whopping 142.8% of GDP debt? Of course not. No this is an issue that has long been largely ignored by the respective Greek governments. Greece is a country rife with political and economical corruption so it is no surprise that they have done little to stem the rising tide of debt until they were recently faced with the possibility of defaulting on their loans. The International Monetary Fund agreed to bail them out in May 2010 provided they curb their spending .

4. Zimbabwe

The cause of Zimbabwe's 149% of GDP debt is simple: Robert Mugabe's mismanagement of the economy and the government budget. Mugabe was never particularly good with balancing the budget and when he started nationalizing Caucasian-run farms, the economy took a rapid downward spiral and hyperinflation took root which of course resulted in exponentially decreasing tax receipts (in terms of real value, as opposed to Zimbabwe dollars whose value is approaching zero faster than a Kenyan running down to the local KFC).

3.Lebanon

In third place is Lebanon with a debt that is 150.7% of its GDP. AS to the cause of it's debt, look no further than its war with Israel in 2006. Wars cost money, and this war was no different.

2.Saint Kitts and Nevis

Surprisingly in second place, with a debt of 185% of its GDP comes these two islands in the West Indies. Never heard of them? No? Neither have I.


1.Japan

 No surprises here. Japan's debt is 225.8% of it's GDP. How did it get so high?
Japan's debt is primarily demographically driven. Remember how Japan was an economic superpower back in the 80's? Everything remotely technological was made in Japan during that time. Well the generation of young Japanese entrepreneurs and power workers that fueled that boom have all grown old. Too old to pay their taxes. Instead of reacting to this by curbing their spending or raising taxes, the successive Japanese governments have resorted to borrowing more and more money. It is interesting to note that a lot of it comes from the US...


Speaking of the US... Did you think it would be on the list? I would have thought so. But in a material world like the one we live in, the US comes a lousy 36th when it comes to public debt. It only has a measly 58.9% debt as a % of GDP. Which means that it can realistically pay of it's debt unlike some countries...

My home country, Australia is 107th on the list which doesn't give me any relief in the slightest. A debt of 22.4% of our GDP is not going to be easy to pay off. Thanks a lot Kevin Rudd. Thanks for stimulating our debt with your little package.

Source: Wikipedia of course! all figures are from 2010

Why I hate Trump... part 2

Ok, so as soon as i posted Snoop Dogg and bragged about being a successful blog pimp, my daily views crashed back down to 800. Ok guys, I get the point. I promise I won't post Snoop Doggy dog again. I should also add in my defense that I don't even like him, his pic just came up in the first 20 images of a google image search for "pimp" and his was arguably the best of the miserable lot.

Anyway, so before I got side tracked, I posted about how much I hate trump and how bad he will be to America if he ever gets into power.

I also discussed how he might resolve the budget deficit. Let's analyze how he might do this. Now Trump has already stated that he won't raise taxes, which makes our analysis easy. First of all may I present to you two pretty graphs I fetched from wikipedia which they in turn nicked from CBO Historical Tables, which they got from the government i guess, maybe it was the fraser report. I don't know, but if you do not trust wiki on this one then tell me and I will get off my lazy ass and get you a better sourced graph.

Notice that the the US government lost 1294 billion dollars last year. Unless some dramatic policy or crisis changes the revue and expenditure affects America this year, the figure will remain roughly the same, with the exception of the interest on the debt which will increase, but for all intents and purposes let's pretend it won't change.

Trump says he won't raise taxes so that means only expenditure is fair game. Ok so what they hell is discretionary? Presumably it is money that is spent on whatever the US government wants to at the time, which means it is not mandatory, so we can take that piece of the pie chart and eat it. This effectively halves the deficit, leaving us with a deficit of 634 billion. Great, but the public debt is still increasing at a rapid rate, even though the deficit has been halved.

I'm going to assume that "other mandatory" is indeed mandatory, but even if that was reduced down to zero there would still be a deficit of ~200billion, which is still quite unacceptable if one ever wants to catch up with the 14.25 trillion dollar US government debt.

Which leaves 3 more options (on top of the aforementioned eliminating discretionary spending) to reduce the deficit down to zero or lower (thereby making it a surplus):
1. completely disband the military, this will give a very modest surplus. note that cuts to the defense budget just won't cut it, the military has to be majorly downsized into practically nothing in order to give even a small surplus.
2. eliminate medicare and medicaid OR reduce the expenditure on these programs by ~80% (I cbf doing the math but I know it's somewhere around that figure)
3. halve spending on both medicare and medicaid

Notice that reducing funding to social security isn't feasible because social security also provides 40% of the government's revenue.

So what is it going to be Trump? Are you going to eliminate welfare in America or are you going to leave the US and all of it's citizens defenseless? Or both?

Personally I think it would be just a hell of a lot easier to raise corporate taxes... Which we all know that Trump is never ever going to do.

Global Financial Crisis

This is a post I have been avoiding for some time. It was a much heated topic and it left a lot of people asking themselves "wtf just happened?".

Enough time has passed now to thoroughly analyze it objectively, so let's do that. Firstly, what was it and who did it affect?

Strangely enough, it wasn't really a global financial crisis. The whole world panicked, but it only really affected America and their investors. China's economy steamrolled ahead, Europe's economy continued its long predicted and expected slump and as for Australia's economy, we kept shipping coal to China who still was happy to buy it from us so all was good.

Some people would disagree and say it was Krudd's stimulus package that saved us but there really is no sound reasoning behind this frivolous idea. Stimulus packages only affect the consumer side of the economy, I think the consumer side of the economy can crawl up in a ball and die. If the plethora of shopping centres all go bust then it can only help the economy in the long run as labor is shifted to more important industries. Again some people may disagree with this, but I'm not going to go on a tangent justifying this, save it for another post.

Why did it happen is the main question or was the main question on everyone's minds. I have two very different ideas on the matter. The first is the obvious. Private debt. In particular, bad debts. The US's private debt has long surpassed private savings and this is never a good thing for the economy.

Corporate debt is bad too, but the great thing about corporate debt is that you can just let the bankrupt companies die. A lot of people will lose their jobs but it creates a niche market for new investors to fill in the vacuum with a more successful company, adding greater strength to the economy in the long run.

This is why I facepalmed at the US goverment's decision to "bail out" companies. All that does is slow and lengthen the sick companies' deaths when what we should be doing is speeding it up. Think of it like amputating a gangrenous leg. This is the free market approach.

Unofortunately, it is not possible to do the same with all the millions of people who can't pay the interest on their credit card let alone their credit card debt, let alone their mortgage on their house. That is going to take a whole new generation of more money mastering minors.

Which brings me to my next little hypothesis on why it happened. Ever heard of economics driven by demographics? Put simply, it is the premise that economy is not driven by policy, it is driven by people. It's a fact that when people have families they will buy stuff for their kids, so when you have a whole generation popping out babies like no tomorrow then theres a huge demand for bibs and cribs and the like.

...And when a whole generation gets old and decides to retire then thats a huge drop in production (less skilled workers) and also consumption (suddenly the retirees have to budget their money to last them the rest of their lives, midn you some of them still spend it frivolously anyway).It's a recipe for recession.

I shall stop here. For any Americans still reading this though... how were you affected by the GFC and the credit crunch?