April 23, 2009

Debt is Exploding






Map above shows the debt ratio of single countries before the crisis:

Fitch calculates that the debts of Britain, France and Germany will converge at around 78pc by the end of 2010, all pressing against the limits of AAA respectability. Italy will reach 115pc.

Japan is in a class of its own with debt nearing 200pc of GDP next year, not a happy picture for a country slipping into demographic decline. The working population peaked in 2005. The number of wealth creators needed to finance the debt shrinks year after year.

This curse has already hit Eastern Europe and will soon strike Germany, Italy, Spain and China. Britain’s ageing population crisis is less severe, which has major implications for the sustainability of debt over the long-run. The US and Australia are healthier.

The new map will be much darker by the end of this year. Reckoning time is coming the only thing unclear is which country will default first. One thing is sure though that the default of an European country will trigger a contagious spread all over the EU area and beyond!

The IMF is aware of this and started to run simulations on possible scenarios which could materialize by the end of this year, see images below:

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