One of the most widely used metrics for analyzing the level of debt of a country or sovereign government is Debt to GDP. The idea is that in comparing the overall government debt of Japan to China, for instance, the absolute amount of government obligations needs to be viewed in the context of the size of the economy, as measured by Gross Domestic Product. Countries with larger economies, like the US and China, can sustain higher levels of debt, because the tax base available to them for servicing the debt is so much bigger than, say France or Portugal.
The World Bank publishes Debt:GDP ratios for all major industrialized nations as well as developing economies. Alarms began to sound in 2010 over excessively high levels of debt to GDP in Greece. By 2012, the last year of World Bank published data, the debt to GDP ratio for Greece had climbed to 167%. More economically stable economies like that of Denmark, Finland, Germany, Australia and Canada, have ratios in the range of 50%.
While debt to GDP ratios in the West have been rising now for several years, developing economies like Bulgaria, the Czech Republic, Guatemala, Latvia, Nigeria, Peru and Uganda tend to evidence ratios that are far lower, generally below 30%. Of increasing concern, though, are industrialized nations of Europe like France, Italy, Ireland and Portugal, who along with Greece, each now report ratios of greater than 100%, a benchmark that signals distress.
Of great concern are the debt levels of Japan, now roughly 200% of GDP, a level from which most economists believe it will not be possible for Japan to safely manage its debt, without risk of great financial calamity. Harvard Economics Professor Kenneth Rogoff and Carmen Reinhardt in their highly acclaimed work, "This Time It's Different" show that debt to GDP levels of higher than 90% lead to sharply lower rates of growth for economies, going forward.
Amidst these "problem" economies, the US shows a ratio of 96% as recently as 2013 in the World Bank analysis. This figure reports what is known to as "gross debt", a number that is also often reported on a net basis. The difference between net and gross is the treatment of debt the US government owes to "itself" or specifically Medicare and Social Security. This topic is discussed at length in other blogs on this site.
But here's the catch. While US debt to GDP is considered borderline and not as excessive as the troubled economies of Greece and Japan, the US debt, even on a gross basis is understated on a global comparative basis. This is because few countries of the world have sizable levels of governmental debt undertaken at the state and local level. But in the US, the combined debt of state and local governments now totals approximately $3.1 trillion. When added to the US Treasury gross debt of $18.1 trillion this brings total US governmental debt to $21.2 trillion. Based on US GDP of $17.8 trillion for the 2nd quarter of 2015, this would place the US debt to GDP ratio at 119% (on a comparable global basis) higher than any other World Bank monitored country, save Japan, Lithuania and Greece.
Add in other liabilities of the US government, like the $10.7 trillion present value deficit of Social Security or the estimated $14.4 trillion present value deficit of Medicare, and the ratio becomes a downright alarming 260%.
