Debt Loads of G20 Nations: Japan, U.S. Deep in the Hole

Here is a look at the debt loads of various G20 nations:

(Economist.com): "America, Britain and China are among the many countries that have adopted spend-now-pay-later policies to stave off economic disaster. But giant fiscal stimuluses, tax cuts and bail-outs are weighing heavily on public finances. In a paper prepared for the forthcoming G20 summit, the IMF sets out new forecasts for government debt. Japan's debt burden, which is already the largest of the world's big economies, will reach a sumo-sized 225% of GDP in 2010. Rich countries' debt is set to grow from 83.3% of GDP in 2008 to almost 100% in 2010. Developing economies will see much smaller growth from 35.7% to 37.8% in two years, but these countries also have lower debt tolerance than rich ones."

click to enlarge

Graphic Courtesy of Economist.com

The fact that Japan has the highest debt load of any G20 nation while also being one of the nations that the U.S. is most indebted to is quite interesting, for the simple fact that it's probably not a good thing when the #1 debtor nation is owed a lot of money by the #3 debtor nation.

At the moment we're neck deep in an economic crisis caused by businesses and consumers using debt to fuel faux growth, and/or as a substitute for actual income. Don't be surprised if the next economic crisis is caused by governments doing the same thing, as the debt loans of many of these nations are unsustainable over the long-term. At some point something is going to give and the bill is going to come due.

Source

Economist.com: "Daily Chart: Government Debt - Weighed Down" -- March 09, 2009.

Disclosure: at the time of publishing the author didn't own a position in any of the companies mentioned in this article; the ideas expressed are solely the opinions of the author and shouldn't be viewed as financial or investment advice.

Comments

[PassingBy55:]

"At the moment we're neck deep in an economic crisis caused by businesses and consumers using debt to fuel faux growth, and/or as a substitute for actual income. Don't be surprised if the next economic crisis is caused by governments doing the same thing, as the debt loans of many of these nations are unsustainable over the long-term. At some point something is going to give and the bill is going to come due. "

Well said..enough said.

Mar 10 01:06 PM

[Vuke:]

>>it's probably not a good thing when the #1 debtor nation is owed a lot of money by the #3 debtor nation.
<<

Elegantly said. Like two drunks in a bar they've been having a good time but it does raise questions. Will they have the gold in their pockets to pay the tab when it arrives? Or will the bar prefer their paper?

Mar 10 01:29 PM

[PainfullyAware:]

The Shell Game Is Almost Over.

We are using all of our resources to forestall the inevitable. We may have nothing left when the "Hot Potato" game comes to an end.

The charade may be allowed to continue if the CDS clearing houses actually serve their purpose. If this function clears the "Toxic" out of the system; then we can begin again; continuing to pretend that "Debt Is Wealth".

Bummer that the Future has been squandered to save the present.

Mar 10 01:46 PM

[Firat Ünlü:]

"At some point something is going to give and the bill is going to come due."

That point is this year as there's too much debt coming on the market. Yields will inevitably rise for those countries without control of their own CB. Anyone buying government debt from those that monetize should have an exit-strategy in place. Purchasing power will be eroded.

>Will they have the gold in their pockets to pay the tab when it arrives?

They'll just pass the bill onto your kids. Enslaved by interest and welfare payments.

Mar 10 01:53 PM

[Thomas J. G...:]

Good Article. Thank you, it's nice to see it side by side. I think other than times of war there should just be a law that that gov't can't spend more than the tax take and some preset amount of genuine long term borrowing. The gov't can spend last years tax take only in the upcoming budget year. The legislature can pass whatever budget it wants but if the money runs out, no more spending. I guess politicians are the same every where because I can't think of a single country that has this at the federal level.

Mar 10 02:17 PM

[Chris B:]

"The fact that Japan has the highest debt load of any G20 nation while also being one of the nations that the U.S. is most indebted to is quite interesting, for the simple fact that it's probably not a good thing when the #1 debtor nation is owed a lot of money by the #3 debtor nation."
----------------------...
If much of the US-owes-Japan debt is offset by Japan-owes-US debt, then aren't the actual net liabilities a lot less scary than the charts would indicate? If I owe you $50 and you owe me $40, do we need another $90 to cover our combined debts, or just $10? Japan is the US's 3rd largest trading partner. Wouldn't you expect trillions of dollars of currency hedging to be going on from both sides? Japanese investors buy treasuries. US investors buy yen. It all counts as debt.



"Don't be surprised if the next economic crisis is caused by governments doing the same thing, as the debt loans of many of these nations are unsustainable over the long-term. At some point something is going to give and the bill is going to come due. "
----------------------...
Would you say the same thing for companies whose total debt equals almost 100% of annual revenues? That eliminates almost every business except my local snow-cone stand.

Would you say the same thing for individuals? Anyone with a mortgage would qualify as "unsustainable" if the debt/revenue ratio is the only criteria.

Professional lenders are more interested in ability to repay than absolute debt level. Many of the poorest countries in the world have no debt and would default if they ever got some.

Mar 10 02:21 PM

[esterhazy:]

It raises an interesting question of what multiple of GDP can a country borrow before it is insolvent.

Pretend that instead of issuing debt, the government wanted a loan from the bank to buy a house. If it could only spend 10% of it's GDP to buy a house, how much house could it afford (as a percent of GDP) if mortgage rates were 5%? Well, I ran these numbers (and 0 for everything else) in the "Affordable Home Calculator" at the CNN website,

cgi.money.cnn.com/tool...

(using 10 for 10% taking GDP arbitrarily to be 100) and I got that it would be able to afford a home costing 50 (50% of GDP). So perhaps, the governement is taking on more debt than it can handle?

Mar 10 03:40 PM

[wisurvey:]

The perception becomes 'how much can' and 'is a country able' to repay the burden which is being layed on the following generations. This of course is related somewhat to the GDP. However, the core answer to this issue is does each specific country produce tangible goods and services which will pay the future debt? With Japan the answer is related to Europe and US economies. If times are good we'll buy their quality. When times are bad...we're to cheap to buy (evidence by their current state of affairs; keep in mind Japanese govt is a major competitor for internal loans: corp, etc). The concerns I have for US are as follows; we produce less and less tangible goods, our natural resource output is practically non-existent, we consume an incredible amount of other people's resources (oil, gold, silver, copper, cement, the list is endless). Our congress continues to raise the stakes on indebtedness....US is pinching out corporation, entrepreneur, etc for resonable rate loans. We may not be at the tipping point yet; however, we are within a finger tip of reaching it. Once we get there, turning around will be a very, very long journey.

Mar 10 05:35 PM

[Caltorguy:]

Too bad the graphic doesn't show Canada (a G-7 and G-20 member) because we trump all those countries except Russia, which just devalued it's way out of debt.

Mar 10 05:41 PM

[H.J. Huneycutt:]

"Don't be surprised if the next economic crisis is caused by governments doing the same thing, as the debt loans of many of these nations are unsustainable over the long-term. At some point something is going to give and the bill is going to come due."

I agree with this 100%. In fact, I've been of the belief that we'll have a huge economic crisis sometime between 2020 - 2040 for quite some time. I'm surprised by the extent of this current crisis, but it may simply help exacerbate any even bigger crisis.


Also, Japan looks royally screwed according to the chart. Remember, they have been experiencing deflation for a large number of years and the Yen continues to be one of the strongest currencies out there. That makes their debt load even more crushing.

The last thing you want with a high debt load is deflation. You'd rather have inflation so the value of the debt decreases. Not that you want a high debt load to begin with --- but there's really only one way out. At least the US Dollar is the world's reserve currency. That will help us more than people might realize, but we're in bad shape regardless.

Mar 10 05:46 PM

[Allan Hughes:]

Great article; it tells much when US Government Debt exceeds all of the EU countries, especially France and Germany which some in the US seem to laugh at when it comes to economic mismanagement.

One question. Do the numbers include all debt or just the debt held by the public? In the case of the US, because of the "trick" accounting we use for funds borrowed from the Social Security trust fund, these numbers many underestimate our debt.

Mar 10 05:53 PM

[MGA_1:]

Something is funky - Russia is going bankrupt, yet their debt to GDP ratio is far below the US.

Mar 10 06:41 PM

[tom Andersen:]

inflation is the only cure.

Mar 10 06:54 PM

[Moon Kil Woong:]

There is differences. The US government owes a mountain of debt to other countries since it's citizens who have been running negative debt for years can't afford to hold it all. On the other hand, most all of Japan's debt is held by their own population.

Other countries like Russia are going bankrupt because they depend on capital inflows to fuel their economy but their net capital inflows have dried up or in Russia's case actually are running negative.

Hope these facts help.


Constructe now Moon Kil Woong

Mar 10 10:15 PM

[Fly Boy:]

This does not even include all the other stuff:

$30 trillion for medicare underfunding
$70 trillion for social security underfunding

This is just pure debt. The actual debt to GDP is probably about 5x what is reported based on actuarial estimates.

Mar 10 11:10 PM

[MarvinMBA:]

At one time when we had very little international business and the world economy consisted of mostly the USA and we funded our own debt domestically here in the United States it was said that "Deficits Do Not Matter because it is a Bill we owe ourselves". But in the world economy this is no longer true and its obvious that our debt is held by everyone in the world. In a way this makes them beholding to us if they ever want to get paid...they better start praying that we will recover otherwise were all toast....MarvinMBA

Mar 11 12:57 AM

[som:]

because Russia has not many things to offer to the world as in the case of US.

On Mar 10 06:41 PM MGA_1 wrote:

> Something is funky - Russia is going bankrupt, yet their debt to
> GDP ratio is far below the US.

Mar 11 08:38 AM

[fauchier:]

This example really doesn't seem to work: (1) Current guidelines are more like 30% of income for housing, not 10%, so you've tweaked the calculator to achieve a ratio that has little meaning; (2) the US government is currently paying NO mortgage payment on the debt, just accumulating more, so the analogy fails there, too.

You're on to something, just not through this particular example.


On Mar 10 03:40 PM esterhazy wrote:

> It raises an interesting question of what multiple of GDP can a country
> borrow before it is insolvent.
>
> Pretend that instead of issuing debt, the government wanted a loan
> from the bank to buy a house. If it could only spend 10% of it's
> GDP to buy a house, how much house could it afford (as a percent
> of GDP) if mortgage rates were 5%? Well, I ran these numbers (and
> 0 for everything else) in the "Affordable Home Calculator" at the
> CNN website,
>
> cgi.money.cnn.com/tool...
>
> (using 10 for 10% taking GDP arbitrarily to be 100) and I got that
> it would be able to afford a home costing 50 (50% of GDP). So perhaps,
> the governement is taking on more debt than it can handle?

Apr 19 02:26 PM