Governments love debt. Or maybe we should say, politicians, love debt. Politicians take on debt and put it on the backs of the population. This is the standard operating procedure. They do this for good self-serving reasons. When politicians use the government to take on debt, they use some of the money to pass out goodies to people.
It is weird how people think that if the government pays for it, there is somehow no cost. Or if there is a cost, the resources redistributed are taken form others show somehow deserve to have their property taken.
There is one universal truth that any politician will tell you. They know that when the chickens come home to r00st, they will be long gone from public service. Their debts will be the problem of someone else. The next guy comes along and they do the same. This goes on until it cannot continue and the people say we will not pay more taxes to keep the game alive.
The US is approaching the point of no return. This is the point where the interest payments are equal to or more than the budget deficit. When this happens, we will see what goes down. Will taxes go up or will government expenditures go down or will the government simply borrow more. We are betting on door number 3.
But when we look at government debt, we have to remember one thing. Governments do not repay debts. In fact, we are not aware of any government in the history of people kind that has borrowed money and paid it back, never to borrow again. We would like to find an exception, but we think every government that has ever existed had defaulted on their debt.
With his backdrop in mind, we thought it would be worth looking at the debts of all the governments on the planet and size them up. The following chart from the VisualCapitalist.Com shows every country’s share of global debt. No surprise that the US is number one, but Japan is number 2 and we are wondering when they finally throw in the towel and do a massive monetary reset. Since they have their own currency that is internationally accepted, that day will come when inflation takes hold and the value of the currency becomes worthless or there is a massive deflation as their system cannot stand up under its own weight. But let’s not pick on Japan. The US is on the same path, and the only reason a number of European governments are still standing is that the ECB buys their debt. Price is no issue. We all know that economies that shrink cannot service a growing debt load, so debt default is in the cards. When the game of musical chairs ends (i.e. no more refinancing) is anyone’s guess.
If you add up all the money that national governments have borrowed, it tallies to a hefty $63 trillion.
In an ideal situation, governments are just borrowing this money to cover short-term budget deficits or to finance mission-critical projects. However, around the globe, countries have taken to the idea of running constant deficits as the normal course of business, and too much accumulation of debt is not healthy for countries or the global economy as a whole.
The U.S. is a prime example of “debt creep” – the country hasn’t posted an annual budget surplus since 2001 when the federal debt was only $6.9 trillion (54% of GDP). Fast forward to today, and the debt has ballooned to roughly $20 trillion (107% of GDP), which is equal to 31.8% of the world’s sovereign debt nominally.
The World Debt Leaderboard
In today’s infographic, we look at two major measures: (1) Share of global debt as a percentage, and (2) Debt-to-GDP.
Let’s look at the top five “leaders” in each category, starting with its share of global debt on a nominal basis:
| Rank | Countries | Debt ($B) | % of Global Debt | Debt-to-GDP |
|---|---|---|---|---|
| #1 | United States | $19,947 | 31.8% | 107.1% |
| #2 | Japan | $11,813 | 18.8% | 239.3% |
| #3 | China | $4,976 | 7.9% | 44.3% |
| #4 | Italy | $2,454 | 3.9% | 132.6% |
| #5 | France | $2,375 | 3.8% | 96.3% |
Together, just these five countries together hold 66% of the world’s debt in nominal terms – good for a total of $41.6 trillion.
Next, here’s the top five for Debt-to-GDP:
| Rank | Country | Debt ($B) | % of Global Debt | Debt-to-GDP |
|---|---|---|---|---|
| #1 | Japan | $11,813 | 18.8% | 239.3% |
| #2 | Greece | $353 | 0.6% | 181.6% |
| #3 | Lebanon | $75 | 0.1% | 148.7% |
| #4 | Italy | $2,454 | 3.9% | 132.6% |
| #5 | Portugal | $267 | 0.4% | 130.3% |
While only Italy and Japan here are considered major economies on a global scale, the high debt levels of countries like Greece or Portugal are also important to monitor.
In the IMF’s baseline scenario, Greece’s government debt will reach 275% of its GDP by 2060, when its financing needs will represent 62% of GDP.
A recent IMF report, obtained by Bloomberg
Greece, for example, is continuing along a particularly unsustainable path – and external creditors are getting stingier. Most recently, both the IMF and Greece’s euro-area creditors have demanded the country to implement a law that automatically introduces austerity measures if a budget surplus of 3.5% of GDP isn’t hit.
While Greece has dismissed such demands as “unacceptable”, the country – along with many others around the globe – will have to accept that constant debt accumulation has eventual consequences.
