Dear Reader,
Often numbers are cited and is claimed that a country's Government Debt to GDP is unsustainable.
But what is the right number of Debt to GDP Percentage after which the government debt can not and will not be repaid?
According to the euro convergence criteria (also known as the Maastricht criteria) it seems to be implied that level is 60%. Is this a correct estimation?
In my opinion, it depends. Germany's Debt to GDP ratio is 68.1% Can Germany repay 2.3 trillion USD? Hardly, I think. Why? Because the sum is simply staggering. Yes, I know Germany has a large manufacturing base, the Euro is a global reserve currency and so on. So what is the solution? I think Germany has to get its Debt to GDP to circa 40% to be sustainable.
How about USA's Debt to GDP ratio of 105.4% or 21 trillion USD? Is it sustainable? No. That is still an unbelievable sum of money?
How can indebted Eurozone countries and USA get out of this huge government debt problem? One solution is the government debt to be inflated. Basically USA, Germany, France, UK and Japan could borrow when their currency is strong and repay when their respective currencies are weak. The USA had a higher Debt/GDP level around World War II, but the USA managed to decrease its government debt substantially after that to below 40% of GDP in 1980s. But such exercises are dangerous experiments.This should, of course, be accompanied by high inflation. The problem is that it is not possible to have high inflation and growth everywhere in the world simultaneously. Japan's Debt/GDP is 253% which is above 10 trillion USD. Japan's solution seems to be the Bank of Japan(Japan's Central Bank) and other government owned entities buying up huge percentage of the debt. This of, course, will end badly if Japan's debt is not restructured or the country's GDP does not start growing very quickly after let us say a technological breakthrough.
For smaller countries the sustainable Debt/GDP % levels are lower than 40%, as far as I am concerned. Because smaller countries do not have global reserve currencies. Or if they have, like in the case of Switzerland, Norway and Sweden they are marginal.
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Kind regards,
Petar Posledovich
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Disclaimer:
Disclaimer: The blog posts and comments on this blog and posts on social networks are not investment recommendation, are provided solely for informational purposes, and do not constitute an offer or solicitation to buy or sell any securities. The opinions expressed on the blog are Petar Posledovich's. Petar Posledovich does not guarantee the accuracy of the information presented on this blog and social networks. The information presented is "as is".
The blog is stocks analysis and valuation, Bitcoin, Cryptocurrencies, Artificial Intelligence, AI, deep-learning focused. Independent, unbiased AI insights.
Petar Vladimirov Posledovich is not liable for any investment losses incurred by reading and interpreting blog posts on this blog and posts on social networks.
Conflicts of interest: I may possess some of the securities, currencies or their derivatives mentioned in the blog post and posts on social networks!
The blog is property of Wolfteam Ltd. www.wolfteamedge.com
Respectfully yours,
Petar Posledovich
Sunday, June 17, 2018
What Amount of Government Debt to GDP Percentage is Sustainable?
LinkedIn Bio:
https://www.linkedin.com/in/petar-posledovich-5236123/
I recently worked for almost 3 years as a Senior Expert at United Bulgarian Bank AD, part of KBC Group solely doing Market and Counterparty Risk. Before that I worked for 2.5 years as Chief Expert, Market and Counterparty Risk in DSK Bank, part of OTP Bank.
I have interned for 2.5 months with Deutsche Bank AG, worked for 8 months as Market and Counterparty Risk Manager at ING Wholesale Banking and for 1.4 years as Investment Associate at Unicredit Bulbank AD, Bulgaria.
Since November 2010 until July 2017, I was a Research Analyst at the Bulgarian National Bank, where I analyzed financial markets for managing Bulgaria's foreign currency reserves in an efficient manner.
I hold a Master of Science in Applied Mathematics(Financial Mathematics) and BA in Economics from Sofia University 'St. Kliment Ohridski'
I have done 1.5 year of graduate studies at the University of Constance, Germany and Erazmus academic exchange year studies at the Friedrich Alexander University of Erlangen-Nuremberg, Germany.
I am a Licensed Investment Consultant by the Bulgarian Financial Supervision Commission
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