Debt march cripples “wealthy” economies

Global public debt is topping $41 trillion, up more than $10-trillion from 2008 and almost all of that is owed by the developed world, with an increasing portion owed to the developing world.

March 29, 2011
by Gwyn Morgan

Which country is the world’s wealthiest? Economists generally refer to gross domestic product per capita. By this measure, the International Monetary Fund (IMF) says the top eight for 2010 are Luxemburg, Norway, Qatar, Switzerland, Denmark, Australia, Sweden and United Arab Emirates. The US ranks ninth, the Netherlands 10th and Canada 11th.

But does GDP per capita really measure the wealth of a country? Think about it in personal terms: What if your income ranked among the top tier in the country, but your debt also ranked among the highest? Would you be wealthy? Not if your debt were so large that, even with your high income, you have no hope of ever paying it off.

With the help of The Economist magazine’s website, let’s take another look at the balance sheets of those 11 countries based on public debt per capita. Americans bear a public debt burden of US$31,000 per person while citizens of the Netherlands, Switzerland, and Denmark bear about $25,000; residents of Luxemburg, Sweden and Canada carry about $17,000 (Canadians’ share more than doubles if provincial debt is included) and Australians bear only $11,400.

On the other hand, the citizens’ share of the public balance sheet in three of the 11 countries is positive. Norway has a gross debt of $186 billion, but it has a sovereign wealth fund (SWF) valued at $512 billion, for a net worth of $326 billion, or $66,500 per capita. Qatar’s public debt is $13 billion, but SWF is valued at $85-billion, for a net worth of $72-billion or $42,500 per capita.

The UAE, nominally considered one country, is a loose federation of seven emirates that are independent states. Some are quite poor and one, the ostentatious Emirate of Dubai, is heavily indebted. Then there’s oil-rich Abu Dhabi, which has almost no debt and the world’s biggest SWF, the $627 billion Abu Dhabi Investment Authority.

But there is much more to the sovereign wealth story. Consider:
• China’s four big SWFs are valued at $831 billion, nearly offsetting the country’s national debt of $996 billion. The US national debt is $10 trillion, with no SWF.
• Singapore’s two SWFs are worth $381-billion, almost twice its public debt.
• Saudi Arabia’s SWF is worth $444 billion, seven times its public debt.
• Hong Kong’s SWF is $259 billion, six times its public debt.
• Kuwait’s SWF is worth $203 billion, 20 times its public debt.
• Russia’s SWF of $142 billion almost equals its public debt.

$41-trillion debt

The Economist’s debt clock currently shows global public debt topping $41 trillion, up more than $10-trillion from 2008. Almost all of that is owed by the developed world, with an increasing portion owed to the developing world. At 70% of GDP, the average public debt of developed countries is 50% higher than just three years ago. Calculations by the Institute of International Finance show that the US Treasury needs to raise a staggering $4 trillion in 2011, while European governments need to find buyers for $3 trillion in new debt securities and Japan needs $5 trillion.

Sovereign bond markets were volatile in 2010, but this year promises to be even more nerve-wracking. Expect sovereign bond yields to keep climbing, so indebted economies will need to borrow even more to pay the interest. An analysis by the Bank of International Settlements estimated the debt-to-GDP ratios of the US and Britain would more than quadruple by 2040, while that of Japan, Germany and France would triple.

Halting the debt-to-death march will require painful spending cutbacks that will profoundly impact social programs but continuing the march will result in even more pain, because chronic debtors lose the right to make choices.

Gwyn Morgan is the retired founding CEO of EnCana Corp. This column is distributed by Calgary-based Troy Media.

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