Debt is something that most of us struggle with. The fact is we spend more than we take in, and Governments are no exception. Now there are different kinds of debt as well, there’s internal debt and external debt. In terms of Governments internal debt is money owed to the public within a Country, as an example Government Bonds. External debt on the other hand is debt owed outside of the Country, which also can take many forms. External debt, as you can guess, is far more detrimental than internal debt. In simplified terms internal debt is money you owe yourself, and external debt is money you owe others.
For decades we have heard people talking about the ‘ gold standard ‘ and how that was better. And from that discussions regarding on how money is now useless as debt is going out of control. But nevertheless the gold standard is a thing of the past, it is never coming back, I’m not even sure we could even if we wanted to. The US abandoned the gold stand during WW1.
Most now base a Countries primary debt against the Country’s GDP ( gross domestic product ), that’s how much a Country earns compared to how much it owes. Simplified that means if you earn $1000 a month and you owe $1000 a month, you’re breaking even, but you’re really not. So where do we stand?
The US is currently at 104.3% of GDP ( 12th on that scale ), whereas Japan is at 237.1% ( number 1 ). Canada sits at 89.9% ( 24th ), and the United Kingdom at 86.8% ( 29th ). China by comparison sits at a very comfortable 50.6%. Overall 15 Countries currently have debt that exceeds their GDP.
Now, as said earlier, the question is how much of that debt is external. According to the latest reports US external debt as of June 2020 is $7.04 trillion, the highest external debt in the World, of which $1.07 trillion is owed to China alone. That’s a lot of noodle soup.
( image from 2019 courtesy of visualcapitalist.com )