Canada has the lowest total debt-to-GDP ratio of the world’s 10 largest economies (Australia is 2nd best, Germany 3rd and the U.S 4th) while the U.K. and Japan are 9th and 10th but when such debt is broken down by sectors the findings are quite different. Let’s take a look. Words: 800
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The chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government.
The takeaways are:
- The UK and Japan are far and away the most indebted nations. Japan’s biggest areas are government and financial sector debt. The UK has a very large financial sector.
- As I mentioned yesterday, Canada has high household debt, as does Australia. Unlike the UK and the US which also do, these economies have not seen house price declines.
- Italy and France have low household sector debt which suggests that private sector deleveraging is less of a factor in debt deflation dynamics irrespective of the nonfinancial corporate sector.
- Germany, Canada, the US and Australia have the lowest aggregate debt levels.
Remember that a government deficit that creates debt is always mirrored by a nongovernment surplus so these aggregate numbers don’t tell the full story since you would need serious private sector credit growth to offset government deficits. Another point to remember is that the UK banks in particular have a lot of foreign currency assets that create concomitant liabilities….
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