Canada’s debt to hit 53% of GDP, Britain’s 103%, US’ 122%

AuthorTroy Media Bio

By Troy Media Monday, May 11, 2009

-Dr. Stephen Murgatroyd, Columnist, Troy Media Corporation

Let’s take a look into the future of Canada, Britain and the US through the prism of their indebtedness.

The reasoning behind choosing their indebtedness for future prognostications is really quite simple.

On the one hand, if a country owes more than it generates in income from producing goods and services, then that country relies on lenders to support it and will have to reduce its government services while at the same time increasing taxation. At some point, the level of its indebtedness will affect the lenders – such as the IMF or China continuing to buy US government bonds – willingness to continue lending.

On the other hand, if a country owes nothing but produces significant income from goods and services, it can expand government services without significantly raising taxes.

A country’s indebtedness is calculated by looking at its debt as a percentage of its Gross National Product (GDP). Let’s start first by looking back to 2008 to get an idea of where Canada, Britain and the US stood as the recession started.

How indebted were they? The US debt stood at 75% to GDP, Canada at 63% and Britain at 47%. However, Britain’s debt of £697.5B (C$1232B) in 2008 was a steep climb since 2002, when it stood at just 30% of GDP. Its April 22, 2009 budget is forecasting that debt will rise to 75% of GDP by 2013. Not at all good.

If this isn’t bad enough, though, it gets worse. Many analysts point out that Britain’s official government debt figures exclude certain liabilities – for example, the government’s pension commitment to its employees and to citizens, its bail out of the banks which, though the loans may be paid back, they may not, and so on. Britain’s Centre for Policy Studies argues that the real national debt in Britain is already £1,340B (C$2,370) and now stands at 103.5% of GDP.

But this pales into insignificance once we turn to the US. As of April 7, 2009, the total U.S. federal debt was US$11T (C$13T) – or about US$36,676 for each man, woman and child. After Obama’s budget is passed, the total debt will rise to US$15T, or 75% of estimated GDP by 2013, assuming both an economic recovery and significant growth from 2010. But, like Britain, the US also has unfunded liabilities for health care, pensions and its continued bailouts. As of the beginning of April, once these are added to accepted national debt, the total indebtedness of the US is US$53T (C$63T Canadian), or 122% of GDP – very not good. Most of the official debt is held by China and Japan.

Canada, meanwhile, has a national debt of approximately C$461B – or $13,771 for every man, woman and child. This represents less than half the per capita debt burden of the US. Although Canada’s debt represents 53% of GDP it has a long way to go to get into the major debt leagues. Even the worse-case scenario forecasts for post 2009 budget debt leaves Canada well below other G7 members. Canada, therefore, is in a generally strong position.

But our British friends must brace themselves for much higher taxes (especially if they earn £150,000 a year or more – the so called “rich”) and deep cuts in services.

Our southern cousins are in for a bleak future: beside the temporary expansion in government activity (Chrysler, GM, health care, education), they can look forward to steep tax hikes and budget cuts. Once its lenders start taking a close look at the extent and cost of the services the governments provide, there will be a tightening in the lending market as more and more governments begin to both print more money (called “quantitative easing” in Britain, isn’t that nice) and seek to borrow more at the same time.

Someone is going to call “time” on this brand-new government-sponsored Ponzi scheme. Thrift will be the name of the next decade.

(1) Reader FeedbackSubscribe

Troy Media is issue-driven: as former journalists, we look at the issues from a perspective that is familiar to the media. We tell stories.

Advertisements

About this entry