A graphic picture of debt relative to GDP for major world economies

World governments have borrowed massive amounts of money to live beyond their means. Above is a graphic showing the world's largest economies, how much debt they borrowed and the interest payment due relative to their GDP. The tab is piling up...

Bloomberg: World’s Biggest Economies Face $7.6 Trillion Bond Tab as Rally Seen Fading 

How the debt eventually piles up?

This is just an ordinary US$ 100 bill

US$ 10,000 can fit snugly into your trouser pockets...

Hmm...US$ 1 million needs a decent sized briefcase...

At US$ 100 million, one needs to stack these notes onto a pallet....

US$ 2 billion dollars...that's 20 pallets loaded onto a truck...

Now let's visualise how major countries debts are piled up compared to the size of national landmarks...

The number of red pallets represent government repayments due in 2012;  yellow equates to the outstanding debt after the 2012 repayments; the trucks represent the 2012 interest payments due on the total debt piles

Hat-tip to Demonocracy.info

India

India is rather poor if you look at individual income but because of its large population, skewed with younger demographics in which more than 50% are under age 25 and 65% under 35 ,  it is a significant economic power-house in the world.

It has racked up a debt of 74% of the economy in 2011, which is more than the 60% debt to economy ratio set by EU for economic stability standard.

China

The debt pile seems rather scary for China but the size of its economy and population is not to be underestimated. The debt only accounts for ~17.5% of the economy.

China has the world's second largest economy, overtaking Japan in 2011, it is still experiencing economic growth and has the biggest foreign exchange reserves in the world at US$ 3,200 billion.

The bigger the foreign exchange reserves, the more power the country has to influence the value of its own currency.

The greater a country's foreign reserves, the better position it is in to defend itself from speculative attacks on the domestic currency.

It is also accumulating gold bullion aggressively in 2011 to diversify its "paper" reserves.

Japan

Japanese debt stacked around the destroyed Fukushima Nuclear Power Plant. Japan could have built a wall of money to keep Fukushima safe from the Tsunami, with all the money they borrowed.

Fukushima Power Plant compared to the trucks is GIGANTIC.

Japan is a unique example. It holds a MASSIVE 228% debt to economy ratio. This is only possible because of loyalty of Japanese people to the Japanese government. Japan's people are the main buyers of Japanese government debt, and as long as they blindly buy the debt, and interest rates don't go up, they can practically run up the debt indefinitely. The issues start when everyone starts wondering how they will get the money back.

While historically having a good export surplus; Japan still has two "lost decades", where it has experienced no economic growth. This is mainly due to the large amounts of debt.

United States

USA is the nation with most debt by far in the history of human civilization.

USA's total debt, including personal debt, real estate (mortgage) debt, consumer debt, credit card debt and government debt totals a mega US$ 47,992bn, roughly 2,400 trucks full of money. That's the huge wall at the back in the graphic. Source: US Debt Clock

USA borrowed US$ 1,229 billion in 2011 - roughly 2.5x towers of cash in the background. USA runs a mega ~35% budget deficit, far above the 3% max limit set by EU for economic stability standard.

With industrialized world economies in crisis, USA faces little problem to finance its budget deficit in 2012 since world's money is currently flowing into USA in great numbers as investors try to find "safety" where to store their money, since Europe is not safe; neither are banks.

As long as USA has access to cheap credit due to scared investors willing to hand over their money in name of "safety", USA's interest payments will remain far below normal. Much depends on it retaining its AA+ credit rating and the US dollar's status as a world reserve currency.

Canada

Canada has a US$1,577 billion economy, while carrying a relatively insignificant trade deficit of US$ 9 billion.

In 2012 Canada must re-pay and/or re-finance a significant portion of its debt. It must refinance 42% of its debt, but since the country carries as AAA credit rating as of Jan. 2012 it faces little challenge to re-finance its debt.

Brazil

Brazil has in recent years become an Economic power-house and is now included in the G7 (Group of 7) nations meetings.

The economy is rated at US$ 2,517 billion.

With a 4.7% unemployment in 2011 and an export surplus it it is doing rather well.

United Kingdom

The UK has a large economy of US$2,480 billion but now holds debt in the size of ~75% of economy, which is more than the 60% max debt to economy ratio set by EU for economic stability standard.

As of Jan 2012, UK holds a AAA credit rating but has a staggering Gross External Debt of US$8,981 billion(not shown).

The private sector of UK (people, business', etc) are highly indebted, only surpassed by USA. High debt slows economic growth and it is reflected in the slow 0.9% growth of economy in 2011, which is much lower than the 4.2% inflation - meaning people of UK are becoming more poor as of 2011/2012.

France

The French are among the countries attacking PIIGS countries for their bad economic behavior, but are increasingly finding themselves in the same economic situation.

Their credit rating was downgraded from AAA to AA+ recently and hold a 83.5% (2011) debt to economy ratio, above the 60% set by EU for economic stability standard.

French banks are also among the financially weak banks that pose a danger to the French economy.

 Italy

Italy's economy is considered weak and too indebted for safe financial operation. Even its key commercial banks, including Unicredit, are a total mess.

It has a debt ratio of 118.1% (2010) to economy, far above the 60% limit set by EU for stability. Italy faces a GIANT re-payment / re-finance of US$ 428 billion of its debt in 2012, with strong fear that it will have problems finding lenders/investors that want to lend the weak country money.

Credit rating agencies say the outlook for Italy is negative, which means their credit rating will be down-graded in the future, as the debt takes serious toll on the economy and try struggle to pay back their debt.

This will further scare lenders / investors away and force the interest rates up - amount of trucks full of cash of tax-payer money sent to investors / banks / lenders.

Germany

Germany is considered the flag-ship of European economies.

Germany holds a ~80% debt ratio to economy, above the 60% limit standard set by EU for stability, while being mad at Greece and PIIGS for doing the same.

Germany faces a US$ 285 billion repayment/refinance of debt in 2012 but sees no problem of finding lenders, since Germany's economy looks great compared to the rest of the industrialized world.

Russia

The motherland is doing great...

Russia compared to its large economy holds barely any government debt - only 2.5% of economy (GDP).

Russia's Government benefits from large export surplus to pay for government's expenses.

The export surplus comes mainly from exporting natural resources, including natural gas and oil.

Is 6% yield on sovereign bonds the crisis point of no return?

With Italian 10 year bonds having crossed a critical 6% yield threshold this week, it is worth seeing how other  sovereign bonds behaved. Let us look at the 20 week run-up period before the crossover...

For Greece, the chart starts on September 4th, 2009, and it first crossed the 6% threshold in the week of January 15th, 2010.

For Ireland, the graph starts on May 7th, 2010 (right before the original bailout) and it breaks 6% for the first time during the week of September 10th, 2010 (around the time of EFSF announcement).

For Portugal, the graph starts on May 14th, 2010 (right before the original bailout) and it breached 6% for the first time during the week of September 17th, 2010 (around the time of EFSF announcement).

For Italy the graph starts on June 17th 2011 (before the “big” July bailout) and it just crossed the 6% threshold.

Greece broke 6% and never looked back. It had a few rallies, but never really got close to 6% again. Portugal and Ireland had similar experience until quite recently. Portugal continues to track the path first blazed by Greece. Maybe Greece is unique, but from a time series study, Portugal seems right on track to follow it. Ireland has materially turned the corner, though it hasn’t improved recently. I don’t think it is a co-incidence, that Ireland had let some financial institutions experience severe write-offs, and then it turned the corner.

It is too early to tell what path Italy will follow, but at least for the other countries, they traded similarly prior to the breach, and followed similar paths after the breach. Italy is too big, that I don’t think it can turn like Ireland did. If Italy moves much further, I think it will follow Portugal and Greece. It has more debt than Portugal, Ireland and Greece combined.

Governments do not have months to fix this, they have weeks, and they have been squandering them.

Otherwise, austerity measures will become a regular fixture of day to day living for the populace going forward.

One can anticipate protection by examining purchasing an ETF called Proshares UltraShort Euro (NYSE:EUO) which increases in value by 2% for every 1% decrease in the value of the Euro. 

Click here for more info: Eurozone countries 10 year bond yield - the great unravelling

Acropolis now...the web of PIIGS debt exposed in technicolour

The following pentagram is from the New York Times. Crafted from the BIS (Bank of International Settlements) data, it shows the total debt load of the PIIGS (Portugal, Ireland, Italy, Greece and Spain) nations as at 31st December, 2009 spotlighting how much is owed:
1. between the PIIGS nations themselves and
2. from the PIIGS to the major trading European partners, France, Germany and the UK
Arrow widths are proportional to debt amounts.

The joint EU/IMF rescue package this week of euro 111 billion or US$145 billion (bn) to bail-out Greece has triggered a burning fuse which will have global ramifications. It will leave the much maligned 1990s Asia currency contagion in the dust. There is simply too much interlinked debt in the European financial system at alarming proportions of national GDPs, one wonders how they will ever be rolled-over, never mind paid off.



After Greece, like dominoes, the other PIIGs are about to topple.

It's a sobering thought. EU leadership has been virtually non-existent. The world got a glimpse of this when the Eyjafjallajökull volcano erupted in April and paralysed European airspace for days costing the airlines billions. The Greece situation has merely amplified this.

The value of fiat paper money is waning. We are still some distance from the devastation wrought by hyperinflation in 1920s Germany, 1990s Argentina and 2000s Zimbabwe. It will take magical healing powers for the European financial system to untangle itself and escape the dark forces of dislocation building up within this pentagram.

The watershed moment has finally arrived to fully recognise gold and silver are real alternatives to holding paper money as a store of value.