Percentage of GDP to External Debt: Default is Inevitable

A country's external debt is defined as the part of the total debt of a country owed to foreign creditors.  These creditors may include other banks, governments, corporations, and private individuals.

No one is exactly sure how these debts are collateralized.  There is a lot of fine print in ultra small fonts within the billions of pages of these contracts.  Some believe that it is based upon the country's ability to tax its citizens and the good faith of the government to make good on its debts, but it's always more than that.  Argentina learned the hard way when their economy collapsed and foreigners came in to scoop up their resources.  In the United States, external federal debt has been collateralized with our national lands, though the vast majority of the population is unaware of this.

Recently I saw a list of the percentage of external debt to GDP on the CNBC website.  Sadly, it is in a slide show presentation and a lot of people have missed these important numbers, so I am reproducing the figures here as listed on the CNBC site.

1. Ireland - 1,267%

External debt (as % of GDP): 1,267%
External debt per capita: $567,805

Gross external debt: $2.386 trillion (2009 Q2)
2008 GDP (est): $188.4 billion

2. Switzerland - 422.7%

External debt (as % of GDP): 422.7%
External debt per capita: $176,045

Gross external debt: $1.338 trillion (2009 Q2)
2008 GDP (est): $316.7 billion

3. United Kingdom - 408.3%

External debt (as % of GDP): 408.3%
External debt per capita: $148,702

Gross external debt: $9.087 trillion (2009 Q2)
2008 GDP (est): $2.226 trillion

4. Netherlands - 365%

External debt (as % of GDP): 365%
External debt per capita: $146,703

Gross external debt: $2.452 trillion (2009 Q2)
2008 GDP (est): $672 billion

5. Belgium - 320.2%

External debt (as % of GDP): 320.2%
External debt per capita: $119,681

Gross external debt: $1.246 trillion (2009 Q1)
2008 GDP (est): $389 billion

6. Denmark - 298%

External debt (as % of GDP): 298.3%
External debt per capita: $110,422

Gross external debt: $607.38 billion (2009 Q2)
2008 GDP (est): $203.6 billion

7. Austria - 252.6%

External debt (as % of GDP): 252.6%
External debt per capita: $101,387

Gross external debt: $832.42 billion (2009 Q2)
2008 GDP (est): $329.5 billion

8. France - 236%

External debt (as % of GDP): 236%
External debt per capita: $78,387

Gross external debt: $5.021 trillion (2009 Q2)
2008 GDP (est): $2.128 trillion

9. Portugal - 214.4%

External debt (as % of GDP): 214.4%
External debt per capita: $47,348

Gross external debt: $507 billion (2009 Q2)
2008 GDP (est): $236.5 billion

10. Hong Kong - 205.8%

External debt (as % of GDP): 205.8%
External debt per capita: $89,457

Gross external debt: $631.13 billion (2009 Q2)
2008 GDP (est): $306.6 billion

11. Norway - 199%

External debt (as % of GDP): 199%
External debt per capita: $117,604

Gross external debt: $548.1 billion (2009 Q2)
2008 GDP (est): $275.4 billion

12. Sweden - 194.3%

External debt (as % of GDP): 194.3%
External debt per capita: $73,854

Gross external debt: $669.1 billion (2009 Q2)
2008 GDP (est): $344.3 billion

13. Finland - 188.5%

External debt (as % of GDP): 188.5%
External debt per capita: $69,491

Gross external debt: $364.85 billion (2009 Q2)
2008 GDP (est): $193.5 billion

14. Germany - 178.5%

External debt (as % of GDP): 178.5%
External debt per capita: $63,263

Gross external debt: $5.208 trillion (2009 Q2)
2008 GDP (est): $2.918 trillion

15. Spain - 171%

External debt (as % of GDP): 171.7%
External debt per capita: $59,457

Gross external debt: $2.409 trillion (2009 Q2)
2008 GDP (est): $1.403 trillion

16. Greece - 161.%

External debt (as % of GDP): 161.1%
External debt per capita: $51,483

Gross external debt: $552.8 billion (2009 Q2)
2008 GDP (est): $343 billion

17. Italy - 126.7%

External debt (as % of GDP): 126.7%
External debt per capita: $39,741

Gross external debt: $2.310 trillion (2009 Q1)
2008 GDP (est): $ 1.823 trillion

18. Australia - 111.3%

External debt (as % of GDP): 111.3%
External debt per capita: $41,916

Gross external debt: $891.26 billion (2009 Q2)
2008 GDP (est): $800.2 billion

19. Hungary - 105.7%

External debt (as % of GDP): 105.7%
External debt per capita: $20,990

Gross external debt: $207.92 billion (2009 Q1)
2008 GDP (est): $196.6 billion

20. United States - 94.3 %

External debt (as % of GDP): 94.3%
External debt per capita: $43,793

Gross external debt: $13.454 trillion (2009 Q2)
2008 GDP (est): $14.26 trillion

And these are just the top twenty.  Switzerland came as a big surprise to me.

So what does this mean?  According to the World Bank and the IMF, external debt sustainability (the ability of a country to repay foreign debts) should not be more than 250 percent of a country's revenue or 150 percent of exports.  Higher external debt is harmful to the economy and most likely will result in default.

Somewhere lost in all this is the fact that Irish citizens must kick back half a million dollars to foreign bondholders in addition to any domestic obligations.  Do you really think that the average Irish citizen is going to spend the next thirty years slaving away to pay back these debts to foreigners?  Of course not.

While the US is still sustainable according to IMF and World Bank projections (if you only look at external debt and not the rest of the mess), do you really believe that every man, woman and child in the US will kick in another $45,000 per person?  Since this is a per capita figure and does not include exceptions for children, the disabled, retirees, unemployed, and those living in poverty, the real number the average taxpayer will be expected to cough up is closer to six figures. That's just external debt.  There's a lot more debt out there.

As more countries turn on the printing presses, who will buy this debt?  It doesn't look like a good deal to me.  I cannot imagine China and Russia would buy more paper without some sort of collateral.  Since the US has mortgaged half the country, I am not sure what's left to give.

Never before have we seen such debt spread across the globe.  It would make sense for all countries to renounce their debt and start over, but that isn't in the plans for the globalists.  Exactly when TSWHTF is an unknown, but when it does, it will be economic chaos beyond our imaginations.  And it the collapse will happen relatively quickly and spread like falling dominos.  Look at the Soviet Union.

That Bush and Obama have already violated the Posse Comitatus Act without even a peep from Congress is a good indicator that when the US economy collapses, Obama will use military members as a police force.  It's not a surprise that the US government has wiped out the National Guard, keeping guardsmen in Iraq and Afghanistan.  There is a reason for this.  The federal government is afraid of the states rebelling.

I have been thinking a lot about California and secession.  This scenario makes more sense for California than just about any other state.  California is (or was) the world's ninth largest economy.  Why should California continue to kick in more federal money than it receives AND continuing to collect state taxes to fund federal mandates?  What happens if California secedes?  All that collateral promised by the US government is now property of Californians.  Would the federal government come in and physically prevent California from reclaiming its resources?  Who would do this?  The California National Guard is beholden to the governor and the state of California.  In terms of military strategy, keeping National Guardsmen out of the US and in Iraq and Afghanistan (surge, anyone?) makes more sense, as the beleaguered governors would have no local support - only federal troops.  This is the easiest way for the federal government to maintain control over states and national resources pledged as collateral to foreign debtholders. 

Is it merely coincidence that the National Guard has been called into combat while hundreds of thousands (maybe a million?) serving in the US military - paid and voluntary positions - are sitting around doing busywork at various military installations around the world and that virtually every state has seen the strength of its National Guard severely undermined or wiped out because of casualties incurred in Iraq and Afghanistan?

And what about Russia and China?  These countries have paid off their debts and have cash reserves.  What happens when twenty of the largest debtor nations refuse to pay up?  Does anyone think that they will just allow themselves to be relegated to second world status while all of the so-called capitalist economies default on their debts?  Does anyone not think that Vladimir Putin, former head of the KGB, won't do something drastic?  Imagine how insulted he must feel, having his country defeated economically, politically and socially by the Cold War, listening to Dubbya refer to him as "Pooty poot"  (and Karl Rove was called "Turd Blossom"), and having to suffer through hypocritical U.S. propaganda about capitalism and free markets while the Fed is a private institution and the PPT has been manipulating markets for a few decades and the political rewards system is no different in the US than under the USSR.

Global revolution is inevitable.

UPDATE:  

From The Huffington Post:    

Excerpt:

Iceland, Latvia and Greece are all in a position to call the bluff of the IMF and EU. In an October 1 article called "Latvia - the Insanity Continues," Marshall Auerback maintained that Latvia's debt problem could be fixed over a weekend, by a list of measures including (1) not answering the phone when foreign creditors call the government; (2) declaring the banks insolvent, converting their external debt to equity, and having them reopen with full deposit insurance guaranteed in local currency; and (3) offering "a local currency minimum wage job that includes healthcare to anyone willing and able to work as was done in Argentina after the Kirchner regime repudiated the IMF's toxic package of debt repayment."

Evans-Pritchard suggested a similar remedy for Greece, which he said could break out of its death loop by following the lead of Argentina. It could "restore its currency, devalue, pass a law switching internal euro debt into [the local currency], and 'restructure' foreign contracts."

The Road Less Traveled: Saying No to the IMF

Standing up to the IMF is not a well-worn path, but Argentina forged the trail. In the face of dire predictions that the economy would collapse without foreign credit, in 2001 it defied its creditors and simply walked away from its debts. By the fall of 2004, three years after a record default on a debt of more than $100 billion, the country was well on the road to recovery; and it achieved this feat without foreign help. The economy grew by 8 percent for 2 consecutive years. Exports increased, the currency was stable, investors were returning, and unemployment had eased. "This is a remarkable historical event, one that challenges 25 years of failed policies," said economist Mark Weisbrot in a 2004 interview quoted in The New York Times. "While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they've done it without having to make any concessions to get foreign capital inflows."

Comments

[Randy Cox]

Thank you for compiling that information. People seem to think credit is inevitable. Why? Credit and the inability to pay is what drives these bubbles and pops them.

I know it is too much to expect for our government to encourage paying down debt, but debt is the new slavery. People that owe are less free than those that do not.

Same is true with countries.

[strainer]

The US government has thrown around such a large amount of money at the problems that it has temporarily stabilized the economic system But this comes with a lot of consequences, and the current expansion of the money supply is not sustainable because it will severely damage the value of the dollar and create a significant inflation problem in a few years. That is why I feel gold is one of the best asset classes to invest in currently given its safe haven status and that it is denominated in dollars. And here is a very interesting article on these issues Canada Gold Investing 101 on the top left of the page, which analyzes the relationship between the dollar, the gold price, and gold mining companies as a result of the Federal Reserve's easy monetary policies. I thought it was especially helpful for investors to read to get a better sense of the dynamics between the various sectors of the financial markets to improve their investment knowledge.

[Ken Brodeur]

The year of Jubilee is upon us. Cancellation of all debt would wipe out the criminal element better known as the international bankers. Since all modern money is simply a ponzi scheme, printed out of thin air, let each nation print their own money, interest free and end debt slavery worldwide.
Spread the word, 400 oz gold bars found in China are simply gold plated tungsten steel! Let's round up the international bankers and exile them to the Isle of St. Helena and charge admission to see them.

[Rick]

Yes indeed, Revolution is the Solution!

[Marc]

Sorry, but this statistic seems to be completely screwed up. Is this some "USA, USA, USA, ... God bless America" thing?

Where's Luxembourg? I estimate that the ratio of GDP/dept for that country would excel Switzerland by about 10 times. Both are very small countries and both are popular banking places ... so, in my understanding, of course they both have huge liabilities.

Besides that, Switzerland, for example does export about 7% more of value than it imports every year. The US does import about 30 - 40% more of value than it exports. So, who is going to paying of its external debt at some time?

[Kelly Thomas]

To Marc:

This is external debt. It's hardly a "God Bless the USA" post, and nothing I have published in six years would indicate I am a fan of US economic, social or military policies. I left the US after Bush stole a second election.

Yes, Luxembourg has an external debt to GDP ratio of 4,910%, with GDP at $30.9 billion. Monaco has an external debt to GDP ratio of 1,890 %. However, these are small countries and thus their debt creates disproportionate ratios.

The title of the post includes "default is inevitable"and the body suggests that the debt will not be paid by taxpayers. We need to wipe the slate clean and get rid of the present banking system, perhaps switching to some form of Islamic-style banking (no usury), commodities based currency (and I don't think gold is the answer) and bartering. When the economies collapse and we create something new, the first rule must be that no one who was part of the old banking paradigm may work for the new system. They created this present mess. Be wary when they say they have the answers. All they want is control.

[Marc]

@Kelly Thomas

Sorry for that obious misunderstanding, it wasn't my intend to address that "God bless"-thing to your address, but to CNBC for this statistic.

To me, it seems that CNBC has manufactured some statistic that fits their agenda. Luxembourg and Monaco as the worst debtors of the world would make people suspicious, wouldn't it? So, why are they missing - just because they are small? Switzerland isn't that much bigger by the way (about 7 Mio. people).

I fully agree on your last paragraph. Especially, the US needs to get rid of this private FED - we don't have that here. Man, our banks are huge have much control over our country, but control over our money ... unthinkable.

The whole western world did live above its means for centuries (or even longer?) and sooner or later we must all learn to live within our means. And I personally think we wouldn't lose much - e.g. did you recently watch tv? There's not much I would miss.

[Luke Carthright]

The statistic is flawed because it aggregates government and private debt.

Switzerland has no government debt but it's major banks do. All banks have debts. The moment they accept a deposit they recognize a debt. But they also have liquid assets to match.

Sovereign governments instead don't have assets which can immediately be disposed to front debt committments. Sure, the Greeks could sell islands [as was proposed] and the US could sell Alaska back to the Russians. The US is in the unique situation of being exposed to foreign debt holders in its own domestic currency. So they could just print that. EU countries are in a more serious situation as no individual country has the right to print Euros, they have to go through the ECB.

[White]

I had thought that Japan and Iceland would be in this list.

[swiss]

The statistic shows only the liabilities, but not the assets. That means for example for Switzerland in 2008: gross liabilities of 419 %, but gross assets of 536% of the GDP.

[Kelly Ann Thomas]

Regarding Switzerland, yes their gross assets might be 536 percent of GDP, but the debt that takes up 419 percent of their GDP is external debt - not national debt. Even if Switzerland had no internal debt, their external debt to GDP is in excess of what both the IMF and World Bank is sustainable. It also means that each Swiss person must contribute in excess of $175,000 to pay off foreign creditors. Outside of Americans who seem to be floating in a pool of Prozac, I can't see any of these countries making good on their foreign debt. Too big to fail means nothing.