The Global Ticking Time Bomb: Government Debt

Reblogger Rob Arnold
Real Estate Agent with Sand Dollar Realty Group, Inc. BK627826

Original content by Spencer Rascoff

This paper scared me very badly, so as a form of therapy I figured I’d share it with you. Misery loves company, after all.

Governments around the world are already drowning in debt, and many countries face a high certainty of debt levels that will exceed their GDP (100 in the graphs below means that GDP = the debt amount). Think about that for a second, and imagine it for your own household. GDP is the amount of all goods and services produced in the total economy – it’s sort of like your total personal income in a year. Now imagine if you make $100,000 a year and you owe $450,000 (note that the USA graph says 450 in 2040 which means the US government will owe 4.5x our total GDP by that year). How could you ever get out from under that debt burden? You can’t. And look at how high the interest payments on that debt will be – 25% of GDP by 2040. (Imagine you personally had a 5% interest rate on your $450,000 in debt – that would mean $22,500 in annual interest expense, or 22.5% of your pre-tax income. At least governments don’t have to pay taxes on their own revenue!)

In addition, unstoppable demographic trends (namely the ageing of the population in most industrialized countries) present a future in which we face a runaway train of additional government expenses.

Further exacerbating the debt crisis, the evidence shows that EVENTUALLY having more debt leads to high interest rates (for the government as well as for businesses and individuals), which only makes matter worse.

And basically the only way out of this global crisis is for governments to inflate their way out of the debt loads by printing money to pay down the debt (and to lower the real amount of the debt). Inflation is a pernicious tax on everyone, as it erodes the value of individuals’ savings and incomes. Inflation is very very bad. Basically, this paper says that the whole world is screwed. Uplifting.





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Jeremy Butts
Real Estate Entrepreneur - Louisville, KY

Rob  - Did you know if the Treasury paid off all its debts - there would be no dollars in circulation! As long as we have a fiat currency, we will always have a national debt. That being said, we seem to be testing the limits. Let's pray the Fed can manage inflationary risks. I have my doubts: Deflation or Inflation? Great graphs - thanks for the post!

Mar 07, 2010 12:31 AM #1
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