World Debt Crisis

 Let me accept in the very beginning that I am no economic expert. All I am doing is point out to the data points based on past events.

These are the top 19 countries controlling world’s 80 % of GDP. These are the countries which matter to our progress. Value of our money is derived from the functioning of these economies.

Sr. No.	Name	GDP in Trillion	Percent
1	United States	20.807269	24.92
2	China	14.860775	17.80
3	Japan	4.91058	5.88
4	Germany	3.780553	4.53
5	United Kingdom	2.638296	3.16
6	India	2.592583	3.11
7	France	2.551451	3.06
8	Italy	1.848222	2.21
9	Canada	1.600264	1.92
10	South Korea	1.586786	1.90
11	Russia	1.464078	1.75
12	Brazil	1.363767	1.63
13	Australia	1.334688	1.60
14	Spain	1.247464	1.49
15	Indonesia	1.088768	1.30
16	Mexico	1.040372	1.25
17	Netherlands	0.886339	1.06
18	Switzerland	0.707868	0.85
19	Saudi Arabia	0.680897	0.82

 

Out of the above following are the 9 countries to which 80% of the world debt is owed.

Sr. No.	Name	Debt In Trillion	Percent
1	United States	21.465	32.42937
3	Japan	11.788	17.80933676
2	China	6.764	10.21906632
8	Italy	2.744	4.145641336
7	France	2.736	4.133554918
5	United Kingdom	2.455	3.709019489
4	Germany	2.438	3.683335851
6	India	1.851	2.796494939
12	Brazil	1.642	2.480737271

 

Out of the above following are the 5 countries having Debt to GDP ratio more than 100%

GDP is total good and services you produce in the country in a year. Debts are even though a long term obligation to be paid over the years is always compared to GDP.

Sr. No.	Name	GDP in Trillion	Debt in Trillion	Debt to GDP
3	Japan	4.91058	11.788	240.0531
8	Italy	1.848222	2.744	148.467
12	Brazil	1.363767	1.642	120.4018
7	France	2.551451	2.736	107.2331
1	United States	20.807269	21.465	103.1611

 

Even though Venezuela, Greece, Portugal also has more than 100% debt to GDP their economies are not large enough to have ramifications for the entire world. Sure their financial crisis will have ripples on world banking and economic environment, but world can come out of it.

For the above mentioned 5 countries even if they perform at their usual efficiency they won’t be able to pay debt out of good manufactured and services produced in one year. Such countries can borrow today and transfer the obligation tomorrow. This is called debt trap where you keeping borrowing money to pay current debt. In turn your debt kept on increasing. Such debt eventually has to be paid.

The figures are pre-covid. You can expect drop in GDP numbers across the world. This is alarming situation. The financial world runs on trust. That debt will be served on time. And if some country default on payment the trust is broken. There have been instances of default. Such countries are punished severely by charging higher interest rates. But because those economies were small and their debt were insignificant banks could bare defaults.

The 5 countries listed above are major part of world economy. Default on their part will devastating for world economy. Entire world can go into recession.

Since last 6 months US 10 year benchmark Bond Yield has already increased .8%. In simple words it means US 10 Year bonds are getting cheaper. Bankers are selling them.

This is too early to call but if the trend continues, US might see a serious demand problem. World economy is dependent on US demand. If that fell, entire world can go into recession. Apart from USofA Japan, Italy, Brazil and France are also the economies we need to closely watch for.