January 21st, 2010

Some perspective on the U. S. Federal deficit and debt.

I find it useful to put statistics in context. We hear a lot about how the American Federal deficit is out of control, often in apocalyptic terms. American exceptionalism tends to make Americans think their problems are unique.

I found this comparison chart helpful. It compares deficit and debt figures for a number of countries.

(Clicking on the image downloads the entire presentation as a pdf.)

The columns headed 2009 and 2010 list government deficits, in percent of GDP. A smaller number here means a smaller deficit.

The column headed "Differential in fiscal deficits (2009-2010)" is the difference, in percent of GDP, between the deficit numbers for 2009 and 2010, with the figure for 2010 subtracted from that of 2009. A negative number here means the country is making progress reducing its deficit.

Public debt (as % of GDP) 2009 is the total debt a country has accrued over time. A higher number means the country owes more money.

Nominal long-run growth is the amount by which it is estimated a country's GDP (its overall economy) grows from year to year, and is expressed in percent.

Maximum fiscal deficit ensuring solvency is a number they generate from the previous two columns, but for the purposes of this post I don't actually care what the methodology is as I'm simply comparing the current state of affairs. How CDS traders rate things is later in the presentation. If you're curious about the whole thing you can download the pdf, which has the charts and graphs in a more readable size: http://www.risque-pays.coface.fr/front/en/storagefile/download/bd3571c7233f6c28cb0fe5e61fbd1085

Two things jump out. First, Japan really has gotten itself into serious debt. Second, Greece, Britain, and Ireland have really been borrowing like crazy the last couple of years.

The United States has been keeping up recently in borrowing money but started from a reasonably low base so the overall debt--while large in absolute terms because of the size of the economy--is also not particularly out of line when compared to other countries.

I'm not trying to minimize the problem but instead trying to point out that the Americans are not alone.

(Source: presentation given by the head of research at Natixis, Patrick Artus, at a conference in Paris, January 18, 2010, via the Financial Times Alphaville blog at: http://ftalphaville.ft.com/blog/2010/01/19/129496/which-governments-are-really-at-risk-of-bankruptcy/)