

Government Debt (chart) - CaptainZapp
http://www.economist.com/blogs/dailychart/2011/06/government-debt

======
kreek
"By the end of 2011, deficit spending on OEF/OIF (Afghanistan/Iraq) will have
raised the ratio of debt to GDP by about 10 percentage points, or between a
quarter and a third of the total increase. By 2020, the increase will be 20
percentage points if war spending and the rest of the budget continue as
forecast"

[http://costsofwar.org/article/macroeconomic-impact-
military-...](http://costsofwar.org/article/macroeconomic-impact-military-
spending)

------
Derbasti
I don't get government debt.

How can _every_ country be indebted? Don't mutual debts cancel each other out?
How can the whole world be in debt?

Whom do they owe that money? Whom do they pay the interest? Does a government
debt mean that each citizen has a debt? Does it mean the government owes that
money to its citizens?

If anyone has insight in this, please enlighten me!

~~~
mkr-hn
Government debt works like any other investment.

[http://www.treasurydirect.gov/indiv/products/prod_tbills_gla...](http://www.treasurydirect.gov/indiv/products/prod_tbills_glance.htm)

Debt serves an important function in modern economies as a safe place to put
money. That's why this debt ceiling showdown is a problem. Investors will take
their money somewhere else instead of putting it in T-bills if they think the
US might default.

Trillions in debt looks ominous, but it represents the trust (and wealth) of
thousands of investors.

~~~
watchandwait
Safe place? Ask investors in Argentine, Russian, and Greek government debt
about that.

The U.S. government is already working to cheat its debt investors by repaying
them with devalued printed paper. One could argue that U.S. government debt is
one of the least safe investments out there. You will get repaid, but it will
be in devalued currency. That dollar you invested 5 years ago, for example,
only buys about 1/3 as much oil as it did when you invested it. That is a
catastrophic loss.

~~~
mkr-hn
Traditionally safe. The recent (past 30 or so years) unwillingness of the
congress to invest that money into maintaining growth (things like
infrastructure maintenance/improvement--"pork projects" as people like to call
them) has started to compromise that. Corporate lobbyists haven't helped much
either.

~~~
watchandwait
Please don't just rely on the nonsense they taught you in econ 101. You need
to understand the relationship between debt, the currency, interest rates, and
a government's ability and willingness to repay. These factors make government
debt potentially VERY risky.

Even in the U.S., which is generally very responsible, government debt has
been a terrible investment at times through the years. The U.S. massively
devalued during the Great Depression and devalued again after World War Two.
An investment in a U.S. ten-year bond in the late-1960s would have been
absolutely creamed, I'm talking about losing much of the real value of your
investment. That's not anyone's idea of safe.

~~~
mkr-hn
Compared to the stock market (Depression) or moving your money overseas (WW2)?
It seems like the US was still the best of what was available at the time.
Gold and commodities would have been toast in an invasion (the axis invading
the US) or collapse of society (French Revolution-style uprising).

Giving the government all your money to keep it afloat in those situations was
still superior, even if the government ended up ruining the value.

------
hardtke
This chart is misleading with regards to the current US debt. It claims our
gross government debt in 93.6% of GDP. There are two types of government debt
-- debt held by the public (currently about 60% of GDP) and intergovernmental
debt (the social security trust fund, medicare trust fund, highway trust fund,
etc.). The latter debt can be wiped away by act of Congress -- they simply
need to change the payout formula such that this debt remains as pieces of
paper in a filing cabinet in West Virginia. We don't even pay interest on this
debt -- we send more pieces of paper to the filing cabinet. Our real debt is
not at crisis levels yet.

------
tybris
Rich countries don't pay off debt, they inflate it away. One of the main
reason for European countries to adopt the euro was to get a piece of the
reserve currency pie, allowing more debt to be eliminated without severe
economic repercussions. Unfortunately, they hit a road block in the
Mediterranean, where, due to poor fiscal management, more inflation would lead
to economic disasters threatening the stability of the euro. Meanwhile, the
U.S. cannot afford much inflation at the moment, since it would threaten the
position of the dollar as reserve currency in favour of the euro. Worse yet,
they have their biggest creditor breathing in their neck with increasing
economic and military power, who would not be pleased by inflationary
measures.

Thus begins the biggest poker game of all, in which the U.S. suddenly cares
about military spending and is trying to get Europe to spend itself into an
inflationary cycle. Meanwhile, Europe is trying to prevent that through severe
budget cuts. Ultimately though, neither can get rid of their debt without
inflation so both taking inflationary measures is the only logical outcome.
China and other countries heavily invested in euros (e.g., Russia) and dollars
(e.g., Japan) will not be pleased, but ultimately their wealth is heavily
dependent on the economic well-being of their biggest lenders and trading
partners. There will be few winners in this game.

~~~
danielsoneg
> The U.S. cannot afford much inflation at the moment, since it would threaten
> the position of the dollar as the reserve currency in favour of the euro.

Not buying that, especially not at the moment - Greece is doing far more
damage to the Euro as a reserve currency than anything the US could do to the
dollar before August 2nd, and if Greece gets its house in order, there's still
Portugal waiting in the wings. What's more, the US has an inflation rate right
now that's practically nil, and I suspect China's interest is in the US
spending again - their bond holdings exist for the sake of currency control,
not as a legitimate investment.

~~~
tybris
Obviously the euro zone is bad, but I think you're overestimating how healthy
the dollar zone is. Oil supplies are dwindling, the weapons industry is losing
importance, the financial industry is not what it used to be, the car industry
is no longer competitive, few major infrastructure projects are being
undertaken, IT is one of the few industries that is going strong, but it
contributes relatively little. Europe has a healthy, productive economy to
back up the euro and it's a threat to the dollar.

~~~
danielsoneg
The USD has a century of relative stability behind it - there have been ups
and downs, but there's never been a full-fledged currency crisis, and a USD
from 1911 can still be used today. The Euro is a stronger threat to the dollar
than we've had in some time, but it's still a relatively new currency and it's
showing strains already. There's a reasonable scenario which the Euro is a
secondary reserve currency, but it's going to take some time and some drastic
crises in the US which somehow don't spill to the rest of the world before the
USD gets dethroned.

You're right, though - the picture's looked an awful lot rosier. I don't
believe there's anything concrete that assures the US's decline, but that's
not for lack of trying on the part of Congress.

------
tomp
Some interesting data points in there... Japan, government dept is 200% GDP?
Never knew that...

Belgium 100.7%? France 94.1%? That's not much better than Ireland (102.4%) and
Portugal (103.1%)!

Obviously some countries are much better at managing their debts than others
(or at least their public image). Can we learn anything?

~~~
zipdog
Japan has had high debt for a couple of decades, and is an interesting
example. From what I understand the debt has really hampered growth. However,
the debt is mostly held by the Japanese (I think), which is a much different
situation because the money is just circulating from the general population to
those in the population holding the debt, rather than being sent overseas to
foreign creditors.

~~~
watchandwait
Japan is about to hit the wall though. They've lived off of a culture of
savings, and those savers are all retiring, so Japan is going to see a reduced
ability to finance its debt domestically. (This is also already beginning to
impact the U.S. ability to borrow from Japan). Japan's house of cards is going
to collapse in the next decade, and Japan's long slide of mismanagement into
the second tier of the global economy will be complete. In just a generation
they will have fallen from first place to trailing Korea.

------
protomyth
Per historical data (one link here:
[http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-
a-f...](http://www.deptofnumbers.com/blog/2010/08/tax-revenue-as-a-fraction-
of-gdp/) ), the US income from taxes hovers between 15% - 20% GDP. This holds
with wildly varying tax policies.

------
smogzer
It's about survival.

For politics:If everything is well we wouldn't need politics to make it right.
Therefore politics must assure that everything is screwed for them to prosper.

For banksters: they must assure that that everyone is indebted and even entire
countries in order for them to survive.

Don't expect solutions from those that thrive on the misery of others.

------
rvkennedy
First thought: the Swedes are doing well! Why is 60% of GDP the target? What
does this do?

~~~
lucasjung
My understanding is that Sweden has drawn a significant portion of its
revenues from North Sea oil, but that they are anticipating significant
declines in production (and therefore revenue). They are preparing for this by
grdually restructuring (read: cutting) government services and benefits to fit
their anticipated revenue, with the added benefit that doing so in advance
allows them to build up a decent nest-egg. In other words, they are doing
something incredibly rare for a government: budgeting in a responsible and
rational manner.

~~~
Tuna-Fish
Sweden has practically no oil production at all, and never had any. The
Scandinavian country with large oil reserves is Norway.

What you are talking about doesn't even describe Norway properly -- they have
largely not spent the revenue they got from oil. Instead, it has been
collected into a sovereign wealth fund. At present, the fund holds some $100
000 for every Norwegian. Future decline of oil profits will be covered by the
investment income from the fund. There hasn't been any cutting of government
services to fit revenues -- there hasn't been any need to.

Sweden, like the other Scandinavian countries, has held a responsible and
rational budget for most of it's existence as a democratic country. So while
it might be incredibly rare for governments worldwide, for some reason it
seems that the Scandinavians can make the idea of a well-run welfare state
work. I have yet to figure out why they can do it and most of the rest of the
world seemingly can't.

~~~
henrikschroder
> I have yet to figure out why they can do it and most of the rest of the
> world seemingly can't.

It helps a lot to have a small country with an ethnically homogenous
population, extremely low corruption, high tax morale, and high public trust
of government offices and institutions.

~~~
bh42222
_It helps a lot to have a small country_

Maybe, or a big but dictatorial country like China.

 _an ethnically homogenous population_

Care to elaborate? Would you consider countries such as Switzerland, Canada,
Taiwan, and Singapore ethnically homogeneous?

 _extremely low corruption, high tax morale, and high public trust of
government offices and institutions._

Chicken and egg problem - High tax compliance and trust in government come
from having a reasonable tax rate from which you get a lot of effective
government services. Low corruption is a pre-requisite for trust in government
institutions.

I bet what also helps is not having a culture of cousin marriage, that seems
to create a culture where is much more difficult to have any kind of trust
with people outside of your clan.

I think the modern well functioning democracy is to a very large degree a
result of complex game theory.

You don't have to look back much more the 2 centuries, to see thousands of
years of European history that's full of corruption, lawlessness, crushing tax
rates, all the typical modern day 3rd world problems and then some.

If just being Swedish led to modern Sweden, Swedish history would be a lot
less interesting. For one, it would almost certainly be entirely Viking free.

------
jeffchuber
Government debt, while not intrinsically bad, is completely unsustainable. I
imagine the US is planning the dollar will fall and it's debts will be
essentially leveled. Maybe the US should adopt BTC?

------
eftpotrm
FWIW, my understanding is that the British government figure is significantly
and artificially inflated by having had to bail out Northern Rock in the
banking crisis - it ended up meaning that the balance sheets of any NR
depositors technically counted against the national debt, but that's hardly
what most actually mean when they're investigating the national debt.

~~~
arethuza
My initial reaction was "surely the NR liabilities can't be _that_ much" -
turns out they are £110 billion out of a total UK public sector net debt of
£910.1 billion - which is a pretty big chunk!

[http://www.economicshelp.org/blog/uk-economy/uk-national-
deb...](http://www.economicshelp.org/blog/uk-economy/uk-national-debt/)

[http://www.heraldscotland.com/northern-rock-could-be-left-
of...](http://www.heraldscotland.com/northern-rock-could-be-left-off-the-
balance-sheet-1.845546)

~~~
eftpotrm
Exactly, and will vanish overnight when Northern Rock is later sold, hence why
they're not really a part of the national debt in any real sense.

------
zipdog
Australia is an interesting point on that chart since less than ten years ago
its debt was around the same as Spain or Canada. I think it had a minerals
boom that brought in large surpluses.

~~~
Estragon
It also had really good governance for a while, under Rudd. Shame the mining
companies had to take him out.

------
chrismealy
What happens in 2026? Is there a debt collector from a foreign planet coming
then?

By definition government debt equals net private savings (+/- exports). If the
private sector wants a surplus you have to have a government debt. The
alternative, as seen on the chart, is to replace net private savings with
welfare state programs.

~~~
tbrownaw
_By definition government debt equals net private savings (+/- exports)._

This is bogus. Sure it's technically true, but it doesn't actually mean
anything.

 _If the private sector wants a surplus you have to have a government debt._

There is no such thing as what's meant by a "surplus" here.

There are two things that can be considered "saving". There is stockpiling
useful things for your own later use, and there is collecting rights to other
people's future work (which can be approximated by stockpiling your chosen
medium of exchange).

But when you consider net "savings" of an entire economy, rather than
individual "savings" of individual people, there is no "other people" to
collect future work from. The government can create more medium-of-exchange
for people to stockpile, and it's recorded as a debt of the government, but
it's entirely meaningless because there's nothing to exchange it for. The only
way to have _net_ savings -- deferring the benefits of current work -- is to
stockpile those benefits in a warehouse somewhere for later retrieval.

