Shortly after completing law school 25 years ago, I recall studying MBA courses focused on the European Union. During that period, Italy, Portugal, and Spain's debt-to-GDP ratios sparked significant discussions within the European Union regarding the admission of new member states. The EU, equipped with its own currency, grappled with varying degrees of financial stability among its member countries. Some fiscally responsible nations were hesitant to embrace new EU entrants unless they adhered to specific fiscal regulations.

The debt-to-GDP ratio is a crucial economic indicator that measures a country's level of indebtedness relative to the size of its economy. It is a critical metric for assessing a nation's fiscal health and its ability to manage its debt burden. These ratios shed light on the financial stability, economic policies, and challenges faced by each nation.

Global Overview

Before delving into specific countries, it is important to consider the global context. The global average debt-to-GDP ratio stands at approximately 100% as debt as a ratio to GDP has soared across the world during COVID-19. This figure represents the collective indebtedness of all the countries in the world relative to their combined GDP. Analyzing individual countries' ratios in relation to this global average can provide insights into the sustainability of each nation and their leadership. Presently, 78% of the voters in the USA feel the country and economy is headed in the wrong direction as inflation and interest rates punish working families.

High Debt-to-GDP Ratios

Several countries exhibit high debt-to-GDP ratios, well above the global average. Greece, with a ratio of about 180%, and Japan, with a staggering ratio of roughly 226%, stand out as two of the most heavily indebted nations. These high ratios can be attributed to various factors, including high levels of government spending, economic challenges, and demographic issues. 

Greece's debt crisis in the early 2010s was a prime example of the impact of a high debt-to-GDP ratio. It led to austerity measures, economic contraction, and a need for international financial assistance to stabilize the country's economy.

Japan, on the other hand, has maintained a high debt-to-GDP ratio for an extended period, driven by its aging population, low birth rates, and persistent budget deficits.

Moderate Debt-to-GDP Ratios

Several countries, including the United States (123%), United Kingdom about (105%), and France roughly (115%), maintain large debt-to-GDP ratios, which are still above the global average. These countries have significant debt burdens, primarily due to factors such as government spending and economic fluctuations. Over the next 75 years, the U.S. government's unfunded obligations total $79.5 trillion.

For example, the United States' high debt-to-GDP ratio reflects its extensive government programs, including Social Security, healthcare, universities and colleges, government workers, and defense spending. However, the U.S. has been able to manage its debt and maintain economic stability, in part due to its status as a global economic powerhouse and its ability to borrow at favorable interest rates.

Low Debt-to-GDP Ratios

Conversely, some countries have notably low debt-to-GDP ratios, suggesting fiscal responsibility, and strong economic management. For instance, Switzerland (14.4%), Norway (13.17%), and Brunei Darussalam (2.06%) have some of the lowest Debt-to-GDP ratios in the world. These countries prioritize fiscal discipline, waste reduction, prudent budgeting, lower crime, mitigating corruption, and may benefit from significant natural resource wealth.

Implications and Challenges

The higher debt-to-GDP ratio does not automatically indicate a crisis, nor does a low ratio guarantee economic prosperity. Other factors, such as the structure of debt, interest rates, and economic growth, play crucial roles in a country's financial stability.

Countries with high ratios must carefully manage or reduce their debt to avoid default and maintain investor confidence. Countries with low ratios can prioritize investments in infrastructure, education, and other areas that promote economic growth. They may  also prepare for potential economic downturns that could increase their debt-to-GDP ratios.

Conclusion

Debt-to-GDP ratios provide a snapshot of a country's fiscal health. While high ratios can be a cause for concern, they do not necessarily equate to economic instability, and low ratios do not guarantee prosperity. Effective fiscal management and responsible policies are essential for maintaining financial stability.

However, the USA has recently implemented an overpriced healthcare system, costly energy regulations, overspent during a COVID pandemic to prop-up inner city budgets, and now has massive inflation.

This debt, unmitigated spending, and hyperinflation is now a cause for international concern. These concerns seem to be pushing investors into commodities, real estate, gold, cryptocurrency, alternative assets, and other assets not linked directly to the dollar, U.S. debt, and the stock markets.

For debt, inflation is the worst thing that can happen because the USA must spend trillions on interest payments each year on the debt rather than helping working families or rebuilding infrastructure.

As of December 2023, the United States government has a monthly interest rate of 3.11% on its debt.  I remember speaking to Congressman Bob Livingston when mortgage rates went back to 8% in the late 1990s, and he said that when lending and inflation rates are high, almost 25% or more of U.S. governmental spending goes to pay the interest on debt.

Presently, the USA is paying over $1 trillion in debt interest per year, with a budget of slightly over $6 trillion per year. Moreover, the inflation and interest rates have pummeled working families in the last three years with vast credit-card debt, new mortgage debt, auto-loan debt, and student loan debts.

As the economy continues to get worse, JPMorgan now says that 99% of Americans will be worse off in 2024 than pre-pandemic. With interest and inflation rates at a 20 year high, politicians and leaders are scrambling to find ways to be re-elected, but the vast majority of voters are angry and disenfranchised at this time with the economy, crime, inflation, and unmitigated immigration. 

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Commissioner George Mentz JD MBA CILS CWM® is an international lawyer, speaker, educator, tax-economist, and CEO of the GAFM Global Academy of Finance & Management ®. The GAFM is a ESQ accredited graduate body that trains and certifies professionals in 150+ nations under CHEA ACBSP and ISO 21001 standards. Mentz is also an award winning author and graduate law professor of wealth management for a top U.S. law school.

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