Battle for more Debt

I will start by showing a simple picture in which red colour shows if a country supposedly has too much debt to carry. This picture is part of a material provided by The Economist.

Source: http://www.economist.com/content/global_debt_clock

As you notice, burning red colour covers all the main developed countries that are the most developed, have the largest financial markets and lead the world politics. Only meaningful countries without blood stamp on them are the Nordic countries, Russia and New Zealand but even all of them are high up in the colour chart. Also the only countries in the European Union that aren't covered by debt seem to be Estonia. Latvia and Lithuania. 

This same trend of increasing debt can also be seen in South American countries. Especially Brazil jumps out but also the other emerging countries like Peru and Colombia are following her example. Actually almost the only countries where debt is marked to be low are countries that are still quite underdeveloped, such as most of the whole Africa but apparently some countries do not even have any data about them.

Following picture shows the total annual debt change per country and paints a slightly more positive image. 

Source: http://www.economist.com/content/global_debt_clock

Referring to the total public debt, similar trend can be seen in this data also provided by The Economist which shows more clearly  differences between countries and includes information on government, household, financial and non-financial debt for all the major economies of the world. Sadly this data excludes many smaller countries, such as the Nordic nations. When looking at total debt in every country we see this graph.  

 

                                  Source: http://www.economist.com/blogs/graphicdetail/2012/09/global-debt-guide

I do wonder China's situation as first picture shows them being a problematic country, but this data shows them doing quite well for themselves. And then we can read news like THIS that give us reason to trust the first picture more and that if information used for the second source is provided by governments then the actual numbers can be even higher for multiple countries.

Japan's high net debt is no surprise but what separates it from the other countries on the list is that large part of its debt  that is held by the government is borrowed from its own citizens. Meaning that if Japan ever decides to default or pay its debt by printing the money needed, then its own citizens would be the ones suffering for the after effects. That is why probably we won't see that ever happening. I'd suspect they would first increase their borrowing from the international markets to honour their obligations to their lenders back at home.

Now about rest of the countries. Personally I don't worry if the government or financial sector holds too much debt. Because I believe that those problems can be controlled if proper decisions are made. But what I do worry is if households hold too much debt. Because that shows that problems are on the ground level. If ground level fails then that will spread to all those banks and companies that do business with(-in) that sector, meaning for example multiple banks that deal with mortgages. When in the case of a financial company failing, the effect could be controlled to only those tied to it, and I believe that companies that stupidly are overly tied to an other company deserve their cruel ending. Because that is how markets are supposed to work (clearly banks are overly tied to each other as we saw from the aftermath of previous financial crisis), punish the wrongdoers.

WAIT? BRITAIN?

Household debt is told to be largest in Britain, Canada, United States, South Korea, and Spain.

Source: http://www.economist.com/blogs/graphicdetail/2012/09/global-debt-guide

 If we compare this information with the overall picture just before, we see that Britain, South Korea and Spain are on the top of the overall list as well (Canada and the United States are not too far either). Now is this worrying? I would say a strong yes. Especially in the case of Britain. Because Britain is in the top three of every list by The Economist.  I wouldn't say that any of these countries are doing great, but Britain is in a class of its own.

And if we look at timelines of the development of their debt then two countries stand out: Spain and Britain. 

They stand out because development of their debt has been much sharper and sudden than in the case of any other country in the sample. They all have experienced a slowdown in the amount net debt but until that graph starts clearly going down there is no reason to celebrate. For example we can compare those pictures to the one of the U.S. which shows similar directions but smaller total % and steadier long-term growth. Now Spain is already in trouble and trying to sort out its debt situation. But Britain? 

For example the CIA's World Factbook lists United Kingdom as the country with second largest debt in the world (After United States) and this lovely list that someone put in Wikipedia tells us that of the countries included in the data of The Economist, Britain has the highest debt per capita (three times that of the United States). 

That isn't even the end of bad news from Britain. Here is a graph showing Britain's trade deficit. You might notice that after the financial crisis numbers go very low, but they were low even before it. That is a worrying sign when one of the leading countries in the world is not able to have a trade surplus even during times that are supposed to be times of growth.

Source: http://www.bbc.com/news/business-25944653

I am more and more worried of Britain as I find more information, but the sad fact is that rest of the world is slowly following in its footprints (or Greece's..) To feel sad due to Greece we can look at another article from The Economist (yes, I seem to have a thing for their articles) published in 26th of October last year. It is about Puerto Rico's debt situation and how ... Well mentioning Greece of the Caribbean tells all you need to know (Another news on the matter)... 

Following numbers remind us that small countries whose bankruptcies might be meaningless to the rest of the world are slowly getting in to trouble as well.

Source: http://www.economicshelp.org/blog/774/economics/list-of-national-debt-by-country/

IN THE FUTURE

Now since we don't have a time machine or any other ability to change the past I don't waste anyone's time by wondering why things are as they are. I would like to focus on the present and the future. Because if something, such as wise decisions are not made in the present then the future will look even darker and our generation might be remembered as Generation D, D stands for debt.

Situation such as this can only be changed in the governmental level. If households are taking too much debt then the lawmakers should control bank's enthusiasm to overlend. For example demand larger wealth for mortgages. Same ideology for business loans etc. But when the problem is government taking more debt then it is up for the politicians to make those hard decision that concern about themselves (meaning they might not be re-elected, probably every politician's worst fear). The truth is that unless politicians start being farsighted and bold enough to make some hard decisions that might hurt them but be good for the country in the long-term, then we will never get out of this rat wheel of increasing debt. Greece waited too long to restructure its debt and is now paying the price.

Source: http://www.debtbombshell.com/