The debt figure that really matters

The debt figure that really matters is not a country’s government debt, but the total debt from all sources—governmental, individual, financial and non-financial business.  The Economist magazine published an interactive version of the above map which provides a lot of good information about debt and the history of debt in major industrial countries.

  • If you look at the complete debt picture, we’re a lot worse off than the government national debt figures would indicate.  The high debt figures are a reason why traditional economic stimulus measures haven’t had the usual effect.  When individuals and businesses get a little extra money, they pay their IOUs rather than spend it.  This is good and necessary in the long run, but prolongs the Great Recession in the short run.
  • If you look at the complete debt picture, a lot of other countries are in worse condition than we are.  Notice, also, that the BRIC countries — Brazil, Russia, India and China — have a relatively small debt burden compared to the United States, United Kingdom, France and Germany, even though the government bonds of the latter four countries are rated AAA, unlike the BRIC countries’ bonds.

On the government side, I don’t see how debt can be paid down without increased taxes.  Looking at the broader picture, I don’t see how debt can be paid down, nor increased taxes generated, without economic growth to generate jobs and new wealth.

Click on Owe dear for the interactive version of the map and an accompanying article in The Economist.

Hat tip to The Big Picture.

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