In my latest NEWSWEEK column, I suggested that the unthinkable had become thinkable: some advanced society"”say, the United States, Spain, Italy, Japan, or Great Britain"”might someday default on its government debt. It wouldn't pay its creditors all they were owed or wouldn't pay them on time. Just a few days later, and completely coincidentally, the International Monetary Fund (IMF) issued a report that, without saying so, added credence to this unsettling hypothesis. (Click here to follow Robert J. Samuelson).
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The report, done by IMF staff economists, comes with the forbidding title "The State of Public Finances Cross-Country Fiscal Monitor: November 2009." And it isn't much fun to read, because it's full of tables, charts, and various ratios. But the central conclusions, buttressed strongly by all the statistics, are simple enough: the economic and financial crisis has dramatically increased the deficits and debt of most countries, and many wealthy countries are in worse shape than major developing nations.
The economic crisis both increased spending"”mainly through government "stimulus" packages and bailouts for the financial system"”and devastated tax revenues. Of these, the falling taxes are the most important, the IMF said, because they may last much longer. The tax losses are especially large for the United States and Britain, because they stem heavily from "taxation of the financial sector and real-estate activities."
A look at the report's statistics reinforces the grim message. The table below shows government debt in relation to a country's gross domestic product (GDP), which is the output of its economy. The first column shows the debt-to-GDP ratio for 2007, the last pre-crisis year; the second column gives the IMF's projection for 2014. (Debt reflects government borrowing to cover annual budget deficits.) By this standard measure, many rapidly growing emerging-market countries are less indebted than wealthier nations.
Untitled Document #hed { font-family: Arial, Helvetica, sans-serif; font-weight: bold; font-color: #000; font-size: 14px; width: 250px; padding-bottom: 10px; } #country-list { width: 140px; padding-right: 10px; float:left; padding-bottom: 20px; } #country-list ul { font-family: Arial, Helvetica, sans-serif; font-size: 11px; font-weight: normal; line-height: 14px; list-style: none; float: left; } #percent-a { width: 100px; padding-right: 10px; float: left; padding-bottom: 20px; } #percent-a ul { font-family: Arial, Helvetica, sans-serif; font-size: 11px; font-weight: normal; line-height: 14px; list-style: none; text-align: left; } #percent-b { width: 100px; padding-right: 10px; float: left; padding-bottom: 20px; } #percent-b ul { font-family: Arial, Helvetica, sans-serif; font-size: 11px; font-weight: normal; line-height: 14px; list-style: none; text-align: left; } .rubric { font-weight: bold; font-size: 12px; } General Government Debt to GDP COUNTRY BRAZIL CANADA CHINA FRANCE GERMANY INDIA ITALY JAPAN SOUTH KOREA MEXICO UNITED KINGDOM UNITED STATES 2007 67% 64% 20% 64% 63% 81% 104% 188% 30% 38% 44% 62% 2014 59% 69% 20% 96% 89% 79% 129% 246% 35% 44% 98% 108%
(Connoisseurs of budget statistics will notice that the figures for the United States differ from those published by the Office of Management and Budget and the Congressional Budget Office. The reason is this: the OMB and CBO figures cover only the federal government; the IMF statistics cover "general government," which includes states and localities. For example, the OMB and CBO debt-to-GDP ratio for fiscal 2007 was 37 percent. But in both series, the big driver of higher debt-to-GDP ratios is rapidly rising federal debt.)
Just as sobering are estimates done by the IMF staff economists of so-called structural deficits"”the hypothetical gaps between government spending and taxes, assuming that the economy has recovered from the crisis and that all crisis-related spending has ended. For the United States, this underlying deficit is 3.7 percent of GDP in 2010 and, in future years, would be driven higher by an aging society and increased spending on Medicare and Social Security. Some other countries' structural deficits for 2010 are even higher: 7.8 percent of GDP for Great Britain, 5.8 percent for Spain, 6.9 percent for Japan, and 8.2 percent for Ireland.
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