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The Debt Of Nations

Tyler Durden's picture




 

Following on from our annual update on the wealth (re)distribution of nations, we thought it important to look at the other side of the household balance sheet - that of 'debt' to see just how much 'progress' has been made in the world. In the aftermath of the credit crisis (and the ongoing crisis in Europe), government debt levels continue to rise but combining trends in household debt highlights countries that have sustainable (and unsustainable) overall debt levels  - and thus the greatest sovereign debt problems. Whether the 'number' is from Reinhart & Rogoff or not, the reality is that moar debt is not better and the nations with the highest debt-per-capita may surprise many. Critically, despite the rise in 'wealth' from 2000-2008, the ratio of debt-to-net-worth rose on average by about 50% (and in many nations continues to rise).

With the regular occurrence of sovereign debt crises, relatively little attention has been given to the parallel issue of personal debt. Yet household debt has transformed over the past 30 years from low level borrowing mostly securitized on housing assets into wholesale credit seemingly available to anyone for any purpose.

As a consequence, household debt as a proportion of income has doubled almost everywhere, and has on occasion exploded by a factor of ten or more.

Our analysis of household debt highlights a number of facts that may come as a surprise. For example:

  • Canada now has the highest debt to income ratio among G7 countries, and Italy has the lowest.
  • The countries with the highest levels of household debt per adult – Denmark, Norway and Switzerland – are among the wealthiest and most successful;
  • Debt has risen significantly in developed countries over the past decade, but it is nowhere near the scale of the developing world, where almost every country has surpassed the global average of 45% growth during 2000–12.
  • While a high ratio of debt to net worth does not itself signify a problem for a country, it does appear to send a warning signal when combined with rapid growth in household debt. Greece, Hungary and the United Arab Emirates fall within this category and all have had problems with debt in recent years. These problems were not directly related to household debt, but rapid growth in personal debt in a highly indebted country is perhaps indicative of a relaxed credit environment that may have wider implications. 
  • Contagion in the Eurozone links Ireland, Italy, Portugal and Spain with the problems in Greece. Our estimates of household assets and debts suggest that Greece is an outlier among Eurozone countries, and that the other countries are better placed to absorb the rise in government debt. However, the deterioration in Ireland’s position since 2008 remains a source of serious concern. Beyond the Eurozone, Hungary and Romania are the countries that need to be most carefully monitored.

 

Via Credit Suisse:

Rising household debt has been one of the most enduring and widespread economic trends of the past 30 years. Evidence for G7 countries suggests that this phenomenon began around 1975. Before this date, the ratio of household debt to annual disposable income within countries remained fairly stable over time and rarely rose above 75%. By the year 2000, household debt in Canada, Germany, the UK and the USA was equivalent to at least 12 months’ income, and in Japan it equated to 15 months’ income (see Figure 1 below). Household debt in France and Italy started from a much lower base, but the gap narrowed considerably between 1980 and 2000, with the debt to income ratio approximately doubling in France and rising even faster in Italy. In most G7 countries, these trends continued until the financial crisis, and then moderated or reversed.

While the financial crisis prompted major debt reductions in the UK and the USA after 2007, the trend towards greater indebtedness has carried on regardless in Canada and Italy. Given its history and reputation for prudent economic policies, it is worth noting that Canada currently has the highest household debt-income ratio among G7 countries.

The regional composition of household debt is dominated by North America, Europe and Asia-Pacific countries (excluding China and India), which together account for 94% of the global total.

Average debt per adult shows even greater variation across countries than average income or average wealth. The highest levels of debt per adult are found in developed countries with well functioning institutions and sophisticated credit markets.

Based on average USD exchange rates since 2000, Denmark, Norway and Switzerland top the league table for household debt per adult in 2012, with values above USD 100,000 (see Figure 4 above). This is roughly twice the level seen in Canada, Sweden, the USA, the UK and Singapore, with Ireland and the Netherlands sitting between the two groups. By these standards, the average debt per adult in Spain (USD 31,200), Portugal (USD 25,800), Italy (USD 23,900) and Greece (USD 19,000) looks quite modest.

Figure 4 also shows that average debt per adult increased during 2000–07 in all the high debt countries apart from Germany, where average debt has been flat, and Japan, where household debt has declined – possibly due in part to the ageing population, given the negative relationship between debt and age. Countries with the highest debt per adult showed little tendency towards debt reduction in the aftermath of the financial crisis: Ireland, the USA and Hong Kong are the main exceptions. Apart from Germany and Japan, only Hong Kong and Singapore have debt levels in 2012 which are close to the levels recorded at the start of the millennium.

Expressed as a fraction of net worth, household debt is typically 20%-30% of wealth in advanced economies, but much higher levels are sometimes recorded, for example in Ireland (44%), the Netherlands (45%) and Denmark (51%).

The burden attached to the rise in household debt needs to be evaluated in the context of the substantial increase in personal wealth during the past decade. Despite the rise in wealth, in most countries where household debt exceeds USD 1 trillion, the ratio of debt to net worth rose on average by about 50% during the period 2000–08 (see Figure 5 above). Debt in the USA increased from 18.7% of net worth in 2000 to peak at 30.5% in 2008 before falling back to 21.7% in 2011. The UK exhibited a very similar pattern, with the debt ratio climbing from 15.2% to 23.4% between 2000 and 2008, subsequently dropping to 20% in 2012.The rise in the debt-wealth ratio was even more precipitous in the Netherlands and Spain, and although the increase abated slightly to 71% in the Netherlands, no reduction is evident in Spain, whose ratio is now 90% higher than it was in 2000.

In the developing world, the absolute level of debt is seldom more than USD 1,000 per adult, but exceptionally high levels – above USD 5,000 per adult – are evident in Brazil, Chile and South Africa

...the biggest changes were recorded in other transition countries: Russia, where average debt increased by a factor of 20 between 2000 and 2007; and Romania and Ukraine, where average debt has seen a fiftyfold increase since 2000 (see Figure 7 below).

The fact that the wealthiest and most economically successful countries tend to have relatively high levels of household debt suggests that debt is both a blessing and a curse. The problem is understanding how much household debt is needed to oil the wheels of economic progress without precipitating the crises of confidence seen recently in several European nations. Table 1 attempts to cast some light on this issue based on the cross-classification of countries according to their debt-wealth ratio and growth in debt per adult.

Several patterns are evident.

First, high-income economies congregate in the upper left section of the table: in other words, they tend to have medium or high levels of household debt relative to assets, and low to medium debt growth in recent years.

 

A second feature is the high growth in debt witnessed in most transition countries in recent years.This is not surprising given the lack of investment opportunities and credit and mortgage facilities in the pre-reform era. What is perhaps unexpected is the speed at which Hungary, Poland, Slovakia and Ukraine have joined the group of countries for which household debt exceeds 20% of net worth.

What is problematic is the speedy growth in household debt. It is worth noting that Greece, Hungary and the United Arab Emirates all appear in the upper right-hand section and all have made headlines in recent years with regard to debt problems. While these headline issues have not been directly linked to household borrowing, the high speed at which household debt has grown is perhaps indicative of a relaxed credit culture that can have further repercussions.

In almost all countries, government liabilities exceeded government financial assets in 2011, leaving the government a net debtor.

With the regular occurrence of sovereign debt crises, relatively little attention has been given to the parallel issue of personal debt. Yet household debt has transformed over the past 30 years from low level borrowing mostly securitized on housing assets into wholesale credit seemingly available to anyone for any purpose.

 

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Tue, 06/04/2013 - 18:48 | 3624799 Totentänzerlied
Totentänzerlied's picture

Exponential = unsustainable. Bitchezzz.

PS: What else happened about 30 years ago that MIGHT be related to this debtsplosion? Gold gold and black gold might be related...

Tue, 06/04/2013 - 18:58 | 3624810 Kirk2NCC1701
Kirk2NCC1701's picture

Judging by Fig. 7 (log scale), we still have a long way to go.  ;-)

www.zerohedge.com/sites/default/files/images/user3303/imageroot/2013/06/...

Till then... "If Momma ain't happy, ain't nobody happy".  So, make Momma... 'happy'.  ;-)

Tue, 06/04/2013 - 23:12 | 3625338 Totentänzerlied
Totentänzerlied's picture

"Base-year 2000"

That's fuckin' rich!

Tue, 06/04/2013 - 18:46 | 3624801 blindman
blindman's picture

what does the term "fraudulent inducement" signify?

Tue, 06/04/2013 - 19:09 | 3624841 SpiceMustFlow
SpiceMustFlow's picture

MOAR CHART PORN!!!!!!!!

Tue, 06/04/2013 - 21:08 | 3625087 blindman
blindman's picture

justification for moar central planning?

Tue, 06/04/2013 - 18:48 | 3624804 busternc333
busternc333's picture

MOAR!

 

Tue, 06/04/2013 - 18:48 | 3624805 Kirk2NCC1701
Kirk2NCC1701's picture

Clearly the globalists will now have to go after the low-debt and moderate to high-GDP countries, as seen in

http://www.zerohedge.com/sites/default/files/images/user3303/imageroot/2...

Tue, 06/04/2013 - 18:54 | 3624812 mickeyman
mickeyman's picture

O Canada

Tue, 06/04/2013 - 18:57 | 3624820 blindman
blindman's picture

Tom Waits-Swordfishtrombone
http://www.youtube.com/watch?v=rDGhJtEsmj8&list=ALBTKoXRg38BC9mujV8ZPkJo...
.
"and if you think that you can tell a bigger tale
I swear to god you'd have to tell a lie." t.w.

Tue, 06/04/2013 - 20:15 | 3624971 rtalcott
rtalcott's picture

https://www.youtube.com/watch?v=I1iI6FMgeWc

 

Small Change Got Rained On By His Own 38

Tue, 06/04/2013 - 20:49 | 3625048 blindman
blindman's picture

there it is !
who to hear it?
Tom Waits - Warm Beer Cold Women
https://www.youtube.com/watch?v=0MUXDpYR6YE
.
......

Tue, 06/04/2013 - 18:59 | 3624826 Robert Neville
Robert Neville's picture

If I’m to believe figure 8 the economic dynamo Norway is the richest country in the world.

Tue, 06/04/2013 - 19:27 | 3624870 Gumbum
Gumbum's picture

A high level of education for the general public. A fair distribution of wealth is making the entire population participate.

 

Oh and lots of oil...

Wed, 06/05/2013 - 09:40 | 3626024 curious_one
curious_one's picture

Lots of oil in a first place...

 

There is no such thing as "fair distribution of wealth" if the state is engaged. It's like to say: "fair distribution of loot". :)

Tue, 06/04/2013 - 20:32 | 3625008 LeisureSmith
LeisureSmith's picture

Yeah, but a decent pint in a place that isn't a total dump will set you back upwards of 13$, and a pack of smokes 16$. The gov. takes a big juicy cut of lifes little pleasures.

The Norwegian sovereign wealth fund will go poof in a hurry if "the market" ever was to......no that will never happen.

Unicorns and skittles as far as the eye can see.

 

Wed, 06/05/2013 - 02:37 | 3625538 The Wedge
The Wedge's picture

If you look at fig 4 you will see Norway has the second highest debt per adult nearly tripling since 2000. Fig 8 shows household net wealth just below Greece while the governments net t wealth is 10 times that. I guess it all depends on how you define rich. But the government appears to have most of the wealth in Norway.

 

In the US, combined public and private debt has climbed to 350% of GDP. Average household income has been relatively stagnant for 40 years. The upward trend in combined debt to GDP began, you guessed, it around 40 years ago. So the perceived prosperity or growth was not real, in fact, it was the exact opposite; debt.

Tue, 06/04/2013 - 19:15 | 3624849 blindman
blindman's picture

pepper spray the lady in red and call it a day !
http://www.todayszaman.com/columnistDetail_getNewsById.action?newsId=317117

Tue, 06/04/2013 - 19:18 | 3624855 Poor Grogman
Poor Grogman's picture

"The fact that the wealthiest and most economically successful countries tend to have relatively high levels of household debt suggests that debt is both a blessing and a curse"

This article is just more Keynesian bubble nomics bullshit.
Take Australia for example, one of the much touted success stories. Australia has a colossal housing bubble which is being propped up by high immigration, cheap credit and taxpayer handouts to anyone and everyone who wants to buy a house. The prosperity of the country hinges on the housing market/ building industry not collapsing so the government DOES EVERYTHING POSSIBLE to keep the bubble inflated.

There is a point of view that it is the change in ( the rate) of debt accumulation that is the driver behind rising GDP and unemployment. Let's take a look at things again when Australia's household credit growth turns down...

Tue, 06/04/2013 - 19:23 | 3624862 blindman
blindman's picture

there is no money.
only debt money, slave slip shovel ready
funny fuck u slippery notes issued by the elite
criminal clown covenant class. love them for
their charm or perish?
funny.

Tue, 06/04/2013 - 20:49 | 3625032 Bogdog
Bogdog's picture

So, according to Chart 8 we should just tax the bejesus out of everyone and pay off the debt.

16 trillion / 330 million people = $48,484 ea.

Adjust that total per person on a graduated scale according to their net worth. Then announce a one time wealth tax. Seal the borders. Close the banks and brokerages. CONFISCATE. And promise REALLY hard, cross your heart hope to die that you will never borrow any more money and live on income tax receipts.

There, fixed it for ya.

Wed, 06/05/2013 - 07:48 | 3625684 OpTwoMistic
OpTwoMistic's picture

Please do not feed them. They will destruct on their own.

Wed, 06/05/2013 - 00:05 | 3625406 NickVegas
NickVegas's picture

I'm a real simple guy, so I don't think it's that hard, even for the brain dead, entitled, genius class of blue bloods on this site.  

“Why do you rob banks..?” “Because”, Dillinger replied “that is where the money is.”

It's kind of hard to strip assets of African tribesman. You have to have assets to strip, so usury is applied to societies with a lot of assets to strip.


Wed, 06/05/2013 - 00:11 | 3625409 NickVegas
NickVegas's picture

I have to ask the question, and I'm serious, if every soveign, all of the peasants, and most of what is left of the World's middle class, a rag tag bunch at best, is in debt, who owns all the paper behind this "debt". Tell me your theory, as a fellow traveler seeking truth and beauty.

 

Down the rabbit hole with the lot of you, lmao.

 

Wed, 06/05/2013 - 03:19 | 3625557 The Wedge
The Wedge's picture

It's elementary my dear comrade: central bankers. Seek as you might, in the night, we shall not pass as fellow travelers for one does not seek the well worn path from the past.

Wed, 06/05/2013 - 10:19 | 3626145 shovelhead
shovelhead's picture

Always a joy to watch the slower ones finally learn their numbers.

Wed, 06/05/2013 - 06:25 | 3625613 smacker
smacker's picture

On consumer debt in developing countries...

The rise in consumer debt in Brazil does not surprise me. There is a serious disconnect between prices and wages in Brazil. High prices & low wages. And it's not just ridiculous prices for imported goods due to high import taxes on cars, electronics etc - Brazil is one of the most protectionist economies in the world - but domestic goods/food produce are also expensive relative to wages. Yet the quality of domestic goods is also often poor relative to similar goods on the global markets, due to lack of marketplace competition and low corporate investment, two consequences of high import taxes and protectionism. Washing machines designed and made in Brazil are straight out of the 1960s, yet the prices are higher than a hi-tech Bosch washing machine bought in Europe. Go figure.

It has become commonplace for consumers to buy virtually anything on credit. This is mainly shop-arranged credit but nowadays also includes regular bank credit cards. A nation of debt slaves is the result.

The ubiquitous notices seen in shops everywhere "5X sem juros, sem entrada" ("5 payments, no interest, no deposit") or similar is seen everywhere in shops selling clothes/shoes, household goods, furniture and even in supermarkets nowadays. This is not surprising when you consider that prices are insanely high and wages are low. People therefore live on perpetual rolling credit. Discount for paying with cash are very rare. Brazilians buy a new fridge over 5 months and when it's paid for, they buy a new sofa, then some new clothes etc etc. I have even witnessed people paying their weekly supermarket bills over 3 payments. It goes on and on. They have a large portion of their wages allocated to paying off their outstanding credit bills.

Wed, 06/05/2013 - 07:47 | 3625680 OpTwoMistic
OpTwoMistic's picture

Many are debt free.  The rest are indentured slaves, just don't know it.

Mostly housing?

Wed, 06/05/2013 - 13:34 | 3626861 dadichris
dadichris's picture

debt-serfdom is a growth industry

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