>Dealing with debt


This is a tale of two tables and a moral on lies, damnedlies and statistics. This morning’s Daily Chart in theEconomist features a table of government debt. Streaking ahead of the rest, thedubious distinction of topping this chart fell to Japan, with gross governmentdebt reaching 230% of GDP.

The financial markets are swirling with speculationon an imminent Greek debt default, and the Hellenes labour under debt at 165%of GDP. The article explains that Japan’s debt is more manageable than theGreeks because the vast majority of it is domestically held, and because adecent chunk is offset by other financial assets.

At the Liberal Democrat party conference, VinceCable likened the present fiscal situation to being the economicequivalent of war. We are told that our financial position is precarious,and that austerity is the only solution. It might then be a little surprisingto see Britain at the foot of the table, with a debt of 80% of GDP. Only Spaindoes better at a little over 70% of GDP. The stalwarts of fiscal rectitude,Germany, have a debt just above 80% of GDP and the USA has just reached 100% ofGDP.

So is all this overblown? Should we pump-prime thebeleaguered economy and spend for growth? Another set of statistics suggeststhat the caution may be justified. These are the figures for the total level ofdebt (set out in a recentButtonwood column in the Economist, and also inthis article from Global Finance), including government debt but alsoincluding business (financial (i.e. banking) and non-financial (i.e. business)and household debt. The graph below (click for large version) demonstrates the relative levels of debt.

Britain comes close to rivalling Japan for thetop spot, with an eye wateringly high figure of 466% of GDP. At the foot of thetable come the BRICs – Brazil (142%), Russia (71%), India (129%) and China(159%). This is borne out in the Economist’s map, which paints these vastcountries in the reassuringly sober green reserved for those with total debt ofless than 200% of GDP. Britain and Japan, by contrast, are alarmingly red.