The graph is from April's (2018) IMF Fiscal Monitor, chapter 1. It's on p. 7. Argentina is notably absent, and I have not found any obvious warning signals in the monitor alerting the reader to the events of the last few weeks. But here I want to call attention to three striking figures.
First, it's notable that despite an austerity narrative, France -- in the news during the last few days -- has seen its indebtedness creeping up. (That can be caused by low growth or loose fiscal controls--or both.) Since there is clearly little appetite for further taxes in France, the IMF's projection of reduced debt over the next few years seem wishful thinking unless France can grow its way out of trouble. But that seems unlikely; in fact, in 2018 growth has fallen quite strikingly from levels of last year. It's not unusual for the French street to beat the political process or that there is a political battle over who should pay for reducing environmentally sensitive CO2 emissions, but after several decent economic years, France is sailing into political trouble in mediocre fiscal shape.
Second, the United States has a lot of advantages in contemporary political economy. But by historical standards its current indebtedness is very high (it tends to be only higher in the wake of a major war) and that, as the chart reflects, will only get worse due to the Trump tax cuts. The IMF has an interesting analysis of these tax cuts. The short version of the results of their dynamic modeling exercise (which takes into account likely effects on business investment) is that "those in the top quintile of the income distribution would gain the most, followed by those in the lower quintile." (p. 16) While the US fiscal position is deteriorating dramatically, if a recession can be avoided in the next eighteen months, the Trump administration may well fight an election on very favorable economic grounds. But when the reckoning comes it will be ugly with little room for fiscal policy.
Third, the table makes it seem that China's indebtedness is relatively low. But that's deceptive; the first page of the report tells a different story: " The world is now 12 percent of GDP deeper in debt than the previous peak in 2009, with China as a driving force." Chinese debt is not just national debt, but also that of the provinces and local government borrowing vehicles much of it opaque. But it's not just government that is involved: "China alone explains almost three-quarters of the increase in global private debt." (p. 30) Lots of creditors are counting on the chinese economic future. It will be interesting to see how that develops because China is ageing rapidly. It has a budget deficit of 4% into the future, and that does not take into account off-budget spending. Bottom line, once the great unwinding of the debt bubble consequent of a decade worth of quantitative easing will commence, retrenchment will be very very painful.
And, yes, global warming is not slowing down.
One of the things that make the debt of both France and the US hard to accurately gauge is the fact the the central banks of the EU and US hold some of these countries' debt. For the US, this is debt owed to itself. US debt held by the public is still bit less than 80% of GDP.
It's more complicated to calculate France's ownership in the ECB balance sheet, but it certainly holds some of France's debt - which is also indirectly owed to itself.
Of the three, the only country that has reserve currency status, and full control over that currency, is the US. That makes the debt load more manageable, but there are limits of course. A greater near term worry is high corporate debt.
Posted by: ajkreider | 12/07/2018 at 02:03 AM