Monday, 23 January 2012

Debt And Interest Rate Comparison published a graph last Friday showing a comparison of debt to GDP ratios amongst developed economies, quoting the WSJ. I took the liberty to use the data from there and add Iceland to it but also add the long term interest rates that those economies are funding the debt on (OECD figures). The following graph shows the comparison.

Debt to GDP ratios of developed economies. Long term interest rates according to OECD on the top of the bars. See CreditWritedowns for references. Q2 2011 figures.

Note: The government debt ratio for Iceland is "general government" but not federal government. The federal government debt ratio was 111% at end of Q2 2011.

Few points to notice

  • Iceland is, contrary to what it was in year end 2010, not the most indebted economy when it comes to non-financial private debt.
  • The Icelandic interest rates are killing the economy! Blame that on indexation of mortgages in Iceland and the legal obligation of pension funds to get 3.5% real return on their investments.
  • There is a reason why Canada's financial sector is the safest one in the world: the economy is simply not that indebted, with the exception of rather high household debt.
  • South Korea, Spain, Iceland and UK are in serious threat of debt deflation: high private debt and interest rates rather high. South Korea's comparatively low debt ratio helps while UK's low interest rates help on the field. Iceland and Spain are debt deflationary doomed, especially since the local governments cannot do much about it (the Icelandic one because of its own debt levels and Spain's because of pressure from Brussels).
  • Japan is "fine" in the sense that they are at least paying low interest rates on their debt, contrary to all the other countries. 

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