Too much debt was one of the main causes for the credit crisis in 2008. So I have been trying to figure out if the total debt-to-GDP ratio has been declining the last few years.
Total US credit market debt-to-GDP has indeed been declining from 385% in 2008 to 355% in December 2012.
Update (November 2013): Right now the ratio seems to be around 345%
In dollars total credit market debt has still been going higher, mainly fueled by the government spending, while household debt has been declining.
US Government debt.
We are moving in the right direction. To much household debt is bad for an economy because people who have run up to much debt will stop spending. Their debt needs to go down so they will have more money to spend on goods and services instead of on interest.
This long term chart which also shows total US credit market debt as a percentage of GDP for the great depression shows that we are following the same pattern as in the great depression.
We are going to a more sustainable ratio. Only we are going a bit slower than in the ’30’s but that is maybe a good thing if we want to prevent a lot of civil unrest and the rise of fascist political movements as happened in the ’30’s .
Japan is the country in the world with the highest government debt to GDP ratio. There is a lot of talk lately about Japan going under because of it’s enormous debtload and the inflation-generating policies of Prime Minister Abe. So I decided to check the numbers out from the Japanese Ministry of Finance.
Japan’s total debt will be at 750 trillion yen at the end of 2013.
Japan will be for 46% (42 trillion yen) dependable on the issue of new government bonds for its budget this year. Half of the money raised with the issue of new bonds (22 trillion yen) will go to the national debt service. The national debt service includes the repayment of previous government bonds and the interest on those bonds.
Japan projects to pay 10 trillion yen in interest this year on their outstanding bonds. That is roughly 11% of the total Japanese government budget.
These are some pretty interesting statistics in my opinion. Because the Japanese government has to pay a very low interest rate on their bonds it all works out at the moment. One can only imagine what will happen when these rates will go up. Taxes will probably have to go up in the future to pay for all this debt.
Japan will certainly be a market to follow in the future!
User snorkel over at huizenmarkt-zeepbel.nl edited an interesting graph about the Dutch housing market with the housing price decline of the past few years. The slide is coming from a presentation given at TU Delft.