Percentage of GDP to External Debt: Default is Inevitable

Percentage of GDP to External Debt: Default is Inevitable

A country's external debt is defined as the part of the total debt of a country owed to foreign creditors.  These creditors may include other banks, governments, corporations, and private individuals.

No one is exactly sure how these debts are collateralized.  There is a lot of fine print in ultra small fonts within the billions of pages of these contracts.  Some believe that it is based upon the country's ability to tax its citizens and the good faith of the government to make good on its debts, but it's always more than that.  Argentina learned the hard way when their economy collapsed and foreigners came in to scoop up their resources.  In the United States, external federal debt has been collateralized with our national lands, though the vast majority of the population is unaware of this.

Recently I saw a list of the percentage of external debt to GDP on the CNBC website.  Sadly, it is in a slide show presentation and a lot of people have missed these important numbers, so I am reproducing the figures here as listed on the CNBC site.

1. Ireland - 1,267%

External debt (as % of GDP): 1,267%
External debt per capita: $567,805

Gross external debt: $2.386 trillion (2009 Q2)
2008 GDP (est): $188.4 billion

2. Switzerland - 422.7%

External debt (as % of GDP): 422.7%
External debt per capita: $176,045

Gross external debt: $1.338 trillion (2009 Q2)
2008 GDP (est): $316.7 billion

3. United Kingdom - 408.3%

External debt (as % of GDP): 408.3%
External debt per capita: $148,702

Gross external debt: $9.087 trillion (2009 Q2)
2008 GDP (est): $2.226 trillion

4. Netherlands - 365%

External debt (as % of GDP): 365%
External debt per capita: $146,703

Gross external debt: $2.452 trillion (2009 Q2)
2008 GDP (est): $672 billion

5. Belgium - 320.2%

External debt (as % of GDP): 320.2%
External debt per capita: $119,681

Gross external debt: $1.246 trillion (2009 Q1)
2008 GDP (est): $389 billion

6. Denmark - 298%

External debt (as % of GDP): 298.3%
External debt per capita: $110,422

Gross external debt: $607.38 billion (2009 Q2)
2008 GDP (est): $203.6 billion

7. Austria - 252.6%

External debt (as % of GDP): 252.6%
External debt per capita: $101,387

Gross external debt: $832.42 billion (2009 Q2)
2008 GDP (est): $329.5 billion

8. France - 236%

External debt (as % of GDP): 236%
External debt per capita: $78,387

Gross external debt: $5.021 trillion (2009 Q2)
2008 GDP (est): $2.128 trillion

9. Portugal - 214.4%

External debt (as % of GDP): 214.4%
External debt per capita: $47,348

Gross external debt: $507 billion (2009 Q2)
2008 GDP (est): $236.5 billion

10. Hong Kong - 205.8%

External debt (as % of GDP): 205.8%
External debt per capita: $89,457

Gross external debt: $631.13 billion (2009 Q2)
2008 GDP (est): $306.6 billion

11. Norway - 199%

External debt (as % of GDP): 199%
External debt per capita: $117,604

Gross external debt: $548.1 billion (2009 Q2)
2008 GDP (est): $275.4 billion

12. Sweden - 194.3%

External debt (as % of GDP): 194.3%
External debt per capita: $73,854

Gross external debt: $669.1 billion (2009 Q2)
2008 GDP (est): $344.3 billion

13. Finland - 188.5%

External debt (as % of GDP): 188.5%
External debt per capita: $69,491

Gross external debt: $364.85 billion (2009 Q2)
2008 GDP (est): $193.5 billion

14. Germany - 178.5%

External debt (as % of GDP): 178.5%
External debt per capita: $63,263

Gross external debt: $5.208 trillion (2009 Q2)
2008 GDP (est): $2.918 trillion

15. Spain - 171%

External debt (as % of GDP): 171.7%
External debt per capita: $59,457

Gross external debt: $2.409 trillion (2009 Q2)
2008 GDP (est): $1.403 trillion

16. Greece - 161.%

External debt (as % of GDP): 161.1%
External debt per capita: $51,483

Gross external debt: $552.8 billion (2009 Q2)
2008 GDP (est): $343 billion

17. Italy - 126.7%

External debt (as % of GDP): 126.7%
External debt per capita: $39,741

Gross external debt: $2.310 trillion (2009 Q1)
2008 GDP (est): $ 1.823 trillion

18. Australia - 111.3%

External debt (as % of GDP): 111.3%
External debt per capita: $41,916

Gross external debt: $891.26 billion (2009 Q2)
2008 GDP (est): $800.2 billion

19. Hungary - 105.7%

External debt (as % of GDP): 105.7%
External debt per capita: $20,990

Gross external debt: $207.92 billion (2009 Q1)
2008 GDP (est): $196.6 billion

20. United States - 94.3 %

External debt (as % of GDP): 94.3%
External debt per capita: $43,793

Gross external debt: $13.454 trillion (2009 Q2)
2008 GDP (est): $14.26 trillion

And these are just the top twenty.  Switzerland came as a big surprise to me.

So what does this mean?  According to the World Bank and the IMF, external debt sustainability (the ability of a country to repay foreign debts) should not be more than 250 percent of a country's revenue or 150 percent of exports.  Higher external debt is harmful to the economy and most likely will result in default.

Somewhere lost in all this is the fact that Irish citizens must kick back half a million dollars to foreign bondholders in addition to any domestic obligations.  Do you really think that the average Irish citizen is going to spend the next thirty years slaving away to pay back these debts to foreigners?  Of course not.

While the US is still sustainable according to IMF and World Bank projections (if you only look at external debt and not the rest of the mess), do you really believe that every man, woman and child in the US will kick in another $45,000 per person?  Since this is a per capita figure and does not include exceptions for children, the disabled, retirees, unemployed, and those living in poverty, the real number the average taxpayer will be expected to cough up is closer to six figures. That's just external debt.  There's a lot more debt out there.

As more countries turn on the printing presses, who will buy this debt?  It doesn't look like a good deal to me.  I cannot imagine China and Russia would buy more paper without some sort of collateral.  Since the US has mortgaged half the country, I am not sure what's left to give.

Never before have we seen such debt spread across the globe.  It would make sense for all countries to renounce their debt and start over, but that isn't in the plans for the globalists.  Exactly when TSWHTF is an unknown, but when it does, it will be economic chaos beyond our imaginations.  And it the collapse will happen relatively quickly and spread like falling dominos.  Look at the Soviet Union.

That Bush and Obama have already violated the Posse Comitatus Act without even a peep from Congress is a good indicator that when the US economy collapses, Obama will use military members as a police force.  It's not a surprise that the US government has wiped out the National Guard, keeping guardsmen in Iraq and Afghanistan.  There is a reason for this.  The federal government is afraid of the states rebelling.

I have been thinking a lot about California and secession.  This scenario makes more sense for California than just about any other state.  California is (or was) the world's ninth largest economy.  Why should California continue to kick in more federal money than it receives AND continuing to collect state taxes to fund federal mandates?  What happens if California secedes?  All that collateral promised by the US government is now property of Californians.  Would the federal government come in and physically prevent California from reclaiming its resources?  Who would do this?  The California National Guard is beholden to the governor and the state of California.  In terms of military strategy, keeping National Guardsmen out of the US and in Iraq and Afghanistan (surge, anyone?) makes more sense, as the beleaguered governors would have no local support - only federal troops.  This is the easiest way for the federal government to maintain control over states and national resources pledged as collateral to foreign debtholders. 

Is it merely coincidence that the National Guard has been called into combat while hundreds of thousands (maybe a million?) serving in the US military - paid and voluntary positions - are sitting around doing busywork at various military installations around the world and that virtually every state has seen the strength of its National Guard severely undermined or wiped out because of casualties incurred in Iraq and Afghanistan?

And what about Russia and China?  These countries have paid off their debts and have cash reserves.  What happens when twenty of the largest debtor nations refuse to pay up?  Does anyone think that they will just allow themselves to be relegated to second world status while all of the so-called capitalist economies default on their debts?  Does anyone not think that Vladimir Putin, former head of the KGB, won't do something drastic?  Imagine how insulted he must feel, having his country defeated economically, politically and socially by the Cold War, listening to Dubbya refer to him as "Pooty poot"  (and Karl Rove was called "Turd Blossom"), and having to suffer through hypocritical U.S. propaganda about capitalism and free markets while the Fed is a private institution and the PPT has been manipulating markets for a few decades and the political rewards system is no different in the US than under the USSR.

Global revolution is inevitable.

UPDATE:  

From The Huffington Post:    

Excerpt:

Iceland, Latvia and Greece are all in a position to call the bluff of the IMF and EU. In an October 1 article called "Latvia - the Insanity Continues," Marshall Auerback maintained that Latvia's debt problem could be fixed over a weekend, by a list of measures including (1) not answering the phone when foreign creditors call the government; (2) declaring the banks insolvent, converting their external debt to equity, and having them reopen with full deposit insurance guaranteed in local currency; and (3) offering "a local currency minimum wage job that includes healthcare to anyone willing and able to work as was done in Argentina after the Kirchner regime repudiated the IMF's toxic package of debt repayment."

Evans-Pritchard suggested a similar remedy for Greece, which he said could break out of its death loop by following the lead of Argentina. It could "restore its currency, devalue, pass a law switching internal euro debt into [the local currency], and 'restructure' foreign contracts."

The Road Less Traveled: Saying No to the IMF

Standing up to the IMF is not a well-worn path, but Argentina forged the trail. In the face of dire predictions that the economy would collapse without foreign credit, in 2001 it defied its creditors and simply walked away from its debts. By the fall of 2004, three years after a record default on a debt of more than $100 billion, the country was well on the road to recovery; and it achieved this feat without foreign help. The economy grew by 8 percent for 2 consecutive years. Exports increased, the currency was stable, investors were returning, and unemployment had eased. "This is a remarkable historical event, one that challenges 25 years of failed policies," said economist Mark Weisbrot in a 2004 interview quoted in The New York Times. "While other countries are just limping along, Argentina is experiencing very healthy growth with no sign that it is unsustainable, and they've done it without having to make any concessions to get foreign capital inflows."

http://www.picassodreams.com/picasso_dreams/2009/12/percentage-of-gdp-to-external-debt-default-is-inevitable.html