Chart of the day: EU public sector debt as % of GDP
Thursday, January 13, 2011 at 11:58AM First, here's the slide I use in the brief for the U.S.:
So you get the sense of the US coming out of WWII basically 100% in debt and then spending three decades to whittle it down to just over 30%. Then Reagan-Bush jack it up to almost 70%, then Clinton brings it back down to almost half, then W. send its back up to 70% and Obama sends it even higher. On the current course, we're back up in the 100% range within years.
Scary stuff.
Here's a similar chart, but laid out as a map of the European Union:
So what do you take from this: when you get in the range that we're heading for, you run the risk of sovereign default--unless, of course, you're the world's leading reserve currency (used to be 70%, now closer to 60% and dropping).
You look at France at 84% and you realize why Sarkozy is taking on the public unions (Economist cover last week). But you also look at Germany and you have to wonder about it's tough love vis-a-vis a Spain, yes?
Point being, almost nobody in the West is doing well on this score. Lotsa glass houses to go around.
Reader Comments (12)
Tom - Slight flaw in your graph, assuming blue is Dem and Red is Republican - Ike's colored blue. Else if blue is decrease and red is increase - Obama's colored blue.
Now for content related commentary --
This analysis from the Bank of International Settlements does a good job and expounding upon this issue: http://www.bis.org/publ/work300.pdf?noframes=1
Short version - it's ugly out there. Even with austerity measures, it's really ugly for much of the OECD. Lots of over-promises from
peoplepoliticians who are bad at math and reality (but i repeat myself).That's a good point. It was up and down colors, but then I added Obama and made him blue, so a decision I must make. Thanks.
"Tom - Slight flaw in your graph, assuming blue is Dem and Red is Republican - Ike's colored blue. Else if blue is decrease and red is increase - Obama's colored blue."
Ike was a sane, "tax and spend" Republican. Republicans are now insane "We have two wars! The only way they can possibly be financed is... with tax cuts!" borrow, cut taxes, and spend Republicans.
And Obama's stuck with a Republican opposition that has the means to totally stop a return to national financial sanity.
So the color-scheme makes a great deal of sense for showing the consequences of the present Republican "tax cut and spend" insanity.
@rkka
"And Obama's stuck with a Republican opposition that has the means to totally stop a return to national financial sanity."
Beat that partisan drum, brother. Don't let the facts get you down.
When your arms get tired, though, and want to talk about how large the wars were relative to our GDP OR our budget, especially in relation to previous wars - VN, Korea, WW2, etc, I'm willing to listen.
Debt as a percent of GDP peaked at 121% in 1946. We had half the world's market after WWII, pent up US consumer demand and a manufacturing capacity that could be converted back from making war materials to consumer products.
What's the way out of debt now?
Hi Tim,
In addition to the US market, there are new markets in the BRIC the US can sell to with Brazil, India, and Indonesia great venues for stripped down packages of cars as well as computers. The US is number 1 in manufacturing still with 20% of the market with the world demanding more of those items. I say let the free trade flow to those 4 countries and partner with them on business ventures here and abroad. That will crush debt within 10 years.
Derek Bergquist
@Derek - so the plan, if I'm understanding, is to open up free trade lanes between the us and the BRICs (some of whom do not want completely free trade - to protect their own nascent industries)... and based on the economic boom this will create, (even if the BRICs were to go along!) ... that'll solve our massive structural deficits?
70 Trillion dollars in unfunded liabilities at the Federal level alone - not even including the states+munis, which a minefield in and of themselves. Not even a post-WW2 bull market would help us with the problems we have - keep in mind most of the WW2 debt was one-time war debt.
Structurally speaking we are beyond screwed. We have to hack medicare *and* significantly raise social security age *and* hack our defense expenditures if we're going to rein this in - and there's no way our electorate will let us do all those things, and certainly not all at once. And again, that's just the federal level. I have no idea what the states and munis are going to do. At least munis can default.
Don't get me wrong - free trade can't hurt. Not at all. Bring it on. But it is not the end-all be-all solution.
Thanks Derek,
Given the opportunities, challenge would be to identify what the smart investment options would be now for individual investors.
Agree with Derek on the debt --- don't see much appetitie from the American people to cut spending by as much as 50-80% as some pundits/experts have recommended.
Hi Tim, Andrew,
I'm not taking lightly 70 trillion dollars, I thought it was half that at around 30 trillion although there is no evidence that people here in the US won't adapt to the medicare debts, social security debts facing the US. For instance, how about living together in retirement, or better yet, living in Mexico, Panama, Malaysia, Peru, or Philippines where the avg $1500 ss check will go further in relative safety and manageable health services. What about India/China making all that medical service crap cheaper.
Also, don't forget about the three new industries coming, Nanotech, Biotech, and Alt Engergy. Three industries where US R&D is coming on strong and the rest of the world, excluding Europe and Japan/Korea/Australia/NZ, are in the damn dark. Sure, the BRICS will resist opening markets although only a matter of time before all the advantages of those three industries will outweigh the disadvantage of not having enough work and income to mitigate droughts/floods from climate change crushing their agriculture workforce (which the BRICS and Africa/LATAM run at about 40% to 90%).
Trust me, 0.3% GDP into energy research and 15 years those industries will be sold to the world. As far as defense goes, we are slated for a generational change in Senators/Reps now and I expect to go from $700 billion per year to $350 billion per year with Navy/Air Force shrunk and tied to our China/India/Russia/Brazil allies and the rest going to the Marines/Army. Remember as Tom says, Al Qaeda delivers, China doesn't and I expect that by 2025.
Thanks.
Derek
"Beat that partisan drum, brother. Don't let the facts get you down."
They don't, because they support my point. "de3adeye Dick" Cheney summed it up with "Reagan proved deficits don't matter."
On the other hand, Clinton raised taxes, amid universal Republican predictions that he would trash the economy. Newtie Gingrich advised the American people to sell their stocks! In 1993!
Instead, it led to the budget surpluses that Dubya inherited, then trashed, just like all the little oil companies he ran into the ground.
@rkka
"They don't, because they support my point." Right. If you ignore the fact that Obama had the largest same-party majority in 70+ years and still couldn't stanch the bleeding of deficit spending and indisputably made it significantly worse with his health care plan. (Regardless of where you stand on the morality of such a plan - the exposure of the federal gov't to that sort of liability expanded the deficit problem)
"Clinton ... it led to the budget surpluses" - only if you ignore A) the role of the Fed's cheap money in the creation of the tech bubble - which Clinton didn't control and B) wholly ignore the explosive growth of the tech sector - which also had absolutely nothing to do with Clinton (nor did its bursting have anything to do with Bush, yet it, and 9/11 (which also had little to do with Bush - but quite a bit to do with Clinton's treatment of terrorism-as-an-LE-problem) led to a significant portion of the deficit-creation)
But hey, Rah-rah Your Team, Boo the-Other-Team(s). Got it. Being that much of a partisan hack is tough, I expect you want a few more weeks before you respond. I'll give you time to concoct a good one. Maybe while you're mulling it over, though, you can consider the possibility that the solution here is not going to lie within our entrenched two-party establishment.
During Bill Clinton's term, he and the Congress lowered the capital gains rate for securities held longer than one year, since the normal income tax rate applies otherwise, barring other time periods, a 5 year period comes to mind. You do bang the partisan drum if you don't include the entire picture.
Since the rich get most of their income from Capital gains, it's hard for you to argue, "raise taxes, and only good follows," because that is not what happened.
At any rate, there is no strong causation between changing the marginal tax brackets and any increase OR decrease in federal revenue, OR GDP growth from what I can find (US in the case). Federal revenues as a % of GDP always stay around 18-20%....Partially validating the argument against a very progressive income tax system.