More debt rankings

By Buttonwood

ANY complete analysis of national deficit problems must, of course, involve more issues than the growth rate/interest rate measure I used yesterday. The debt trap will close more tightly when a country has a higher debt-to-GDP ratio. So the first table shows the same countries as yesterday, ranked by the OECD's forecast for the debt/GDP ratio as of 2011. Going one year ahead captures at least part of one further factor, the size of the ongoing deficit.* In the case of Britain and America, these ratios are deteriorating rapidly.

The second table simply combines the rankings of today's table with yesterday's five year debt trap table. The higher you are in the table, the worse your position looks. Greece appears above Japan simply on alphabetical order, rather than on anti-hellenic bias. It is mildly amusing that the other tie is between the French "socialists" and the American "capitalists".

The combined ranking moves both America and Britain into the middle of the distribution, rather than at the safe end. And clearly, if you want security in your government bonds, Scandinavia looks a good bet.

Japan, as one commenter on the last post rightly says, is in a rather different position because it largely owes the money to itself. This does not eliminate the problem altogether. In their excellent book This Time is Different, Reinhart and Rogoff find 70 cases of domestic default since 1800; even where countries do not default, they may resort to inflation. In Japan's case, the ageing population will be looking to run down its savings, rather than purchase additional bonds.

* I hope to produce another set of tables, with the primary deficits (before debt interest is paid), in due course.

UPDATE: Negative debt/GDP numbers mean that government assets outweigh liabilities. The OECD numbers do not contain contingent liabilities, like public sector pension funds.