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Wednesday, September 20, 2017

Here's why the US's $20 trillion debt isn't that big of a deal

[EAGLE]BOB STRONG/REUTERS The U.S. federal government just passed a record $20 trillion in publicly held debt. That’s bigger than the entire economy of every country in the European Union, combined. The debt will only grow higher unless President Trump and the U.S. Congress can agree to unprecedented spending cuts combined with tax increases. Don’t count on that happening anytime soon. Most people think that an eye-popping $20+ trillion debt is insurmountable, and in fact, it is the largest in the world by far. But when you look at another fiscal measure—the ratio of debt-to-GDP—the U.S. is not in the worst situation. Our visualization allows you to quickly see how the U.S. government’s debt compares to other countries around the world. The size of the country correlates to the size of the debt. The U.S. and Japan stand out because they have the highest debts in the world ($20.17T and $11.59T, respectively). Other countries, like Germany and Brazil, appear much smaller because their debts are comparatively tiny ($2.45T and $1.45T, respectively). We then color-coded each country according to its debt-to-GDP ratio. Green countries have a healthy margin, but dark red and fuchsia countries have debts that are even bigger than their entire economies. [worlds debt 2017 c58d]Howmuch.net THE DEBT-TO-GDP RATIO IS A CRITICAL METRIC FOR EVALUATING A COUNTRY’S FISCAL HEALTH. It makes a lot of sense for the American government to have a higher debt than a much smaller country, like Germany. Think about it like this: Bill Gates is worth $86 billion, so he can afford a much higher credit card bill than me or you. That’s why it’s important to consider the Gross Domestic Product (GDP) of each country, a number which represents the sum of all transactions occurring in the economy. Once you understand the public debt as a percentage of GDP, you get a level playing field for countries on different economic scales. When you think about it like this, the U.S. isn’t even among the ten worst sovereign debts in the world. TOP 10 COUNTRIES WITH THE WORST DEBT-TO-GDP RATIOS  1. Japan (245% at $11.59B) 2. Greece (173% at $338B) 3. Italy (138% at $138B 4. Portugal (133% at $274B) 5. Belgium (111% at $111B) 6. Spain (106% at $106B) 7. Canada (106% at $106B) 8. Ireland (105% at $105B) 9. France (98% at $98B) 10. Brazil (82% at $82B) There’s another reason why $20+ trillion in debt isn’t that big of a deal. The U.S. has a huge debt load both in real terms and as a percentage of GDP, but people around the world don’t hesitate to loan it money at extremely low interest rates. That’s because it’s still seen as an incredibly safe investment. Monetary policy and sovereign debt are complex topics. You can get an advanced degree in this stuff, and not quite understand it. We aren’t saying $20+ trillion in debt is a good thing, but all in all, the U.S. is still in pretty good shape, especially compared to other developed economies around the world. NOW WATCH: Here's what happens when two hurricanes collide


READ THE ORIGINAL POST AT www.businessinsider.com