National Debt

[Bellator]

With the current crisis pushing governements to increase spending, there are concerns raised over the level of national debt

I was looking into how the US' national debt compared to that of other countries. The US' current debt is fairly high (over 70%), comparable to France', but far lower than Italy's (over 110%) or Japan's (over 170%).

What most surprised me however is that, with some notable exceptions (like clusterfuck Zimbabwe), developed nations seem to have the highest national debt. The vast majority of the industrialised world has a national debt of 50% or higher, while most 3rd world countries are well below the 50% mark.

First question: Why is that? Why do rich nations have bigger debts than poor ones (on average, percentage wise)?

Second question: Back in middle school (early 90s) we were taught that we (as the west) needed to reduce the national debts of 3rd world countries if we really wanted to help them, cause the burdens were too high. But how is Uganda's 20% debt more of a problem for the Ugandese than Japan's 170% debt is for the Japanese? Is it just interest rates? Does (for instance) Uganda have to pay an interest rate 8 times that of Japan?

[Alan Bolte]

It's not an answer to your quesiton really, but regarding number 2:
Uganda is issuing 3 year bonds at 13.55%, and Japan is issuing 3 year bonds at 0.47%

[Darth Wong]

When you say that debt is a certain percentage, what is the denominator? GDP? That doesn't really tell you much about a government's ability to pay off its debts. It's like evaluating your own personal debt load by comparing it to the amount of money you deal with at work, rather than looking at how much you personally earn. You should be using government tax revenue as the denominator.

[Surlethe]

The measure is tax as a percentage of GDP. For comparison, US federal tax inlays are generally a little less than 20% of GDP, IIRC.

[Guardsman Bass]

A lot of it is because with the Developed Countries (particularly the US), there is basically no risk of default on the debt. That means that the return is extremely low, but it also means that as long as bankers and purchasers need a secure place to put money, they can put it into government bonds without risking default.

That's not necessarily the case with the Developing World, particularly with certain countries. They have to offer extremely high interest rates just to get purchasers for their bonds. Most of them just can't borrow as much, with the exception of some countries with oil (who use it as collateral; Mexico got into a lot of trouble with this back in the 1970s).

[Jalinth]

Second question: Back in middle school (early 90s) we were taught that we (as the west) needed to reduce the national debts of 3rd world countries if we really wanted to help them, cause the burdens were too high. But how is Uganda's 20% debt more of a problem for the Ugandese than Japan's 170% debt is for the Japanese? Is it just interest rates? Does (for instance) Uganda have to pay an interest rate 8 times that of Japan?

One problem non-major countries have is that they must issue debts in a foreign currency. So not only does your interest go up and down, so do your principal payments. A good but non-governmental example is Icelandic banks. They owed billions in foreign deposits, the government only had modest foreign currency reserves, and once the depositors wanted the money back the banks went under, the Icelandic currency dropped off a cliff (down 2/3 at one point against the euro and $US) and trading almost dried up, and you had a government that couldn't pay off the foreign denominated debt.

Other problems are much higher interest rates, lack of foreign currency to actually make the payments - banks want cash, not barter - extreme corruption. GDP doesn't translate into debt repayment.

Think of a town that runs 100% on barter. It can have a very high town "GDP". But if a local borrows cash to expand a factory, the factory needs to sell to outsiders to generate the cash flow to cover the debt. Many third world countries have this problem coupled with the fact that anyone "wealthy" enough to have foreign currency tends to keep it stored away out of the government's reach and avoids putting hard currency at risk of seizure or devaluation. Making it even tougher to generate debt refinancing cash flow.

[Starglider]

Incidentally the Conservative party here has just started running an advertising campaign about the national debt. It shows a big picture of a newborn baby and 'Labour's gift to this child; N thousand pounds of debt' (I forget the value of N). Of course the Labour supporters say that 'our public services would be in ruins if it wasn't for Labour's spending spree' (hint; they were fine in the early 90s, when the conservatives were last in power).

[andrewgpaul]

£17,000, IIRC. Is that nationwide? I thought it was only the Tories in Scotland who were running that ad campaign.

[Starglider]

£17,000, IIRC. Is that nationwide?

Yes, or at least I've seen the posters in Sheffield and Croydon.