Worldwide Government Debt Growing Faster than GDP

Friday, 05 Oct 2012 07:44 AM

By Michael Carr

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Sovereign debt is not a problem confined to the United States and a few European countries. According to The Economist, the debt owed by governments around the world totals about $49 trillion and is growing by about $7.5 billion a day.

If the global economy grows in line with optimistic World Bank projections, global economic activity should increase by an average of $5.8 billion per day. This is based on estimated growth of 3 percent a year in gross domestic product.

These numbers take away the argument that government can grow its way out debt. As almost any family would realize, if the credit card debt is growing faster than income, the debt can not be repaid.

Alert: End of America's Middle Class a Startling Reality. Read More Here.

Any hope of repayment requires a faith in sustained low interest rates. If interest rates rise by 1 percent, as governments refinance debt, the service costs would rise by about $50 billion a year. That is an amount greater than the entire output of the economy of 115 of the world’s 189 countries, according to World Bank data.

One additional statistic highlights the economic reality facing the world — no one agrees on how many countries there are. In addition to the World Bank’s estimate, the United Nations counts 211 countries in the world, the Central Intelligence Agency believes there are 191 and the International Monetary Fund recognizes 182.

In a world where no one knows how many countries should be drawn on a map, it seems unlikely that we have accurate data for debt. The true amounts owed by however many governments exists is probably more than $50 trillion and is certainly growing faster than GDP.

Debt is a global problem and is already a problem that cannot be solved by growth. The only way out in the long term seems to be currency devaluation and inflation.

Alert: End of America's Middle Class a Startling Reality. Read More Here.

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