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Chart: Debt-to-GDP Continues to Rise Around the World

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debt-to-gdp rise around the world
debt-to-gdp rise around the world

Chart: Debt-to-GDP Continues to Rise Around the World

With vaccines slowly obtaining approval in various countries, the world may finally be on the path to overcoming the COVID-19 pandemic.

The economic situation, on the other hand, is unlikely to improve anytime soon. Falling revenues combined with costly pandemic relief measures have increased global debt by $20 trillion since the third quarter of 2019. By the end of 2020, economists expect global debt to reach $277 trillion, or 365% of world GDP.

Today’s chart uses data from the Institute of International Finance (IIF) to provide an overview of where debt, relative to GDP, has increased the most.

Comparing Developed and Emerging Markets

Developed economies represent four of the five countries seeing the largest increases in debt-to-GDP, but looking from a more macro angle reveals that debt levels are rising at a similar pace around the world.

 Q3 2019 ($ trillions)Q3 2020 ($ trillions)% Increase
Developed markets$181.8$196.38.0%
Emerging markets$70.9$76.47.7%
Global total $252.7$272.77.9%

Source: IIF, BIS, IMF, Haver, National Sources

To put these figures into perspective, economists often use the debt-to-GDP metric, which compares a country’s debt to its economic output. As the name implies, it’s calculated by taking a country’s total debts and dividing them by its annual GDP. Having a low debt-to-GDP ratio suggests that a country will have little issues paying off its debts, while a high ratio can be interpreted as a sign of higher default risk.

The actual definition of a “low” or “high” ratio is quite loose, though the World Bank believes there is a threshold for government debt at 77% of GDP. Every percentage point beyond this threshold has been found to detract 0.017 percentage points from annual growth.

Comparing Debt-to-GDP by Sector

To see how COVID-19 has affected the global economy since Q3 2019, let’s take a look at each sector’s debt as a percentage of GDP.

 Households (Q3 '19)Households (Q3 '20)Non-financials*  (Q3 '19)Non-financials*  (Q3 '20)Government (Q3 '19)Government (Q3 '20) 
Developed markets average72%78%91%102%110%131%
U.S.74%81%75%88%102%127%
Euro Area58%61%108%114%102%115%
UK84%88%73%78%110%130%
Emerging markets average40%44%93%104%53%60%
China54%60%150%166%53%63%
Russia19%23%78%91%15%18%
Global total60%65%92%103%89%105%

*Corporations that are not in the financial industry.
Source: IIF, BIS, Haver, National Sources

Within developed markets, government debt-to-GDP grew by 21 percentage points compared to 11 for non-financial corporates, and 6 for households. This is unsurprising as governments have supplied billions (or in some cases, trillions) of economic stimulus while also pulling in less tax revenue.

The story in emerging markets is slightly different, with non-financial corporates experiencing the largest increase at 11 percentage points. The sector’s debt is now at 104% of GDP, making it the most highly-leveraged in the region.

Highlights from Today’s Chart

Today’s chart boils this data down to the individual country level, allowing us to identify two outliers: Canada and Australia.

Excluding the financial sector, Canada’s debt-to-GDP ratio increased by nearly 80%, the highest of any developed country. Government borrowing surged as the Canada Emergency Response Benefit (CERB), which provided struggling Canadians with roughly $1,500 a month, rang up a bill of $60 billion over 7 months.

An increase in debt wasn’t the only reason for the country’s worsening debt-to-GDP ratios. In Q2 2020, Canada’s GDP declined at an annualized rate of 38%, its worst three-month performance on record.

canada gdp change

Australia was another outlier, but for a different reason; the country’s household debt decreased by almost 5% relative to GDP. This was likely due to an early-access scheme that allowed millions of Australians to make withdrawals from their superannuation, a social security fund similar to America’s 401(k).

We know that almost 60 per cent of those accessing their [superannuation] early have used it…to meet essential day-to-day expenses, including paying down debts.

—Josh Frydenberg, Treasurer of the Commonwealth of Australia

Officials have exercised caution around the prolonged use of these programs, as superannuation funds are meant to support people through retirement. Of the 2.6 million Australians that accessed their superannuations early, 500,000 are believed to have completely emptied their accounts.

Debt-to-GDP is Set to Fall…Or is it?

A global roll out of COVID-19 vaccines is likely to end the ongoing health crisis and allow the economy to return to pre-pandemic levels, though delays are to be expected.

Regardless, this spells good news for governments and financial institutions around the world—economic output will recover, shrinking debt-to-GDP ratios. Whether or not borrowing will also slow down, however, is much harder to predict.

Government borrowing has been relied on to stimulate growth since 2008, and with 75% of Americans in favor of a second COVID-19 relief bill, public debt is likely to accumulate further. Private sector debt is following a similar trend, with non-financial U.S. corporations owing $10.9 trillion as of Q2 2020, up from $6.4 trillion at the start of 2008.

These growing debts have been manageable thanks to an extended period of low interest rates and loose monetary policy, but whether or not this is sustainable remains to be seen.

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Politics

Charting America’s Debt: $27 Trillion and Counting

America’s debt recently surpassed $27 trillion. In this infographic, we peel back the layers to understand why it keeps on growing.

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Why America’s Debt Doesn’t Stop Growing

Public sector debt has been a contentious topic for many years. While some believe that excessive government borrowing can be harmful over the long term, others have argued that it acts as a powerful tool for stimulating growth.

In the U.S., the latter view appears to have taken hold. Since 2008, America’s national debt has surged nearly 200%, reaching $27 trillion as of October 2020. To gain a better understanding of this ever-growing debt, this infographic takes a closer look at various U.S. budgetary datasets including the 2019 fiscal balance.

America’s Debt vs. GDP

Government debts are often represented by incredibly large numbers, making them hard to comprehend. By comparing America’s debt to its annual GDP, we can get a better grasp on the relative size of the country’s financial obligations.

YearTotal Public Debt (USD)GDP (USD)Debt as % of GDP
1994$4.5T$7.1T63%
1995$4.8T$7.5T64%
1996$5.0T$7.9T63%
1997$5.3T$8.4T63%
1998$5.5T$8.9T62%
1999$5.6T$9.4T60%
2000$5.8T$10.0T58%
2001$5.7T$10.5T54%
2002$5.9T$10.8T55%
2003$6.4T$11.2T57%
2004$7.0T$11.9T59%
2005$7.6T$12.8T59%
2006$8.2T$13.6T60%
2007$8.7T$14.2T61%
2008$9.2T$14.7T63%
2009$10.6T$14.4T74%
2010$12.3T$14.7T84%
2011$14.0T$15.3T92%
2012$15.2T$16.0T95%
2013$16.4T$16.6T99%
2014$17.3T$17.1T101%
2015$18.1T$18.0T101%
2016$18.9T$18.5T102%
2017$19.9T$19.2T104%
2018$20.5T$20.2T101%
2019$21.9T$21.1T104%
2020$23.2T$21.6T107%
April 2020$23.7T$19.5T122%

Source: Federal Reserve, U.S. Treasury

In this context, U.S. debt was relatively moderate between 1994 to 2007, averaging 60% of GDP over the timeframe. This took a drastic turn during the Global Financial Crisis, with debt climbing to 95% of GDP by 2012.

Since then, America’s debt has only increased in relative size. In April 2020, with the COVID-19 pandemic in full force, it reached a record 122% of GDP. This may sound troubling at first, but there are a few caveats.

For starters, there are many other advanced economies that have also surpassed the 100% debt-to-GDP milestone. The most noteworthy is Japan, where the debt-to-GDP ratio has climbed beyond 200%. Furthermore, this is not the first time America has found itself in this situation—by the end of World War II, debt-to-GDP peaked at 106% before declining to historic lows in the 1970s.

What’s Preventing the Debt From Shrinking?

Although the U.S. continuously pays off portions of its debt, the total amount it owes has increased each year since 2001. That’s because the federal government runs consistent budget deficits, meaning it spends more than it earns. During economic crises, these deficits can become incredibly large.

Fiscal Year (Sept 30)Budget Surplus or Deficit (USD billions)
2000+$236B
2001+$128B
2002-$158B
2003-$378B
2004-$418B
2005-$318B
2006-$248B
2007-$161B
2008-$458B
2009-$1,412B
2010-$1,294B
2011-$1,299B
2012-$1,076B
2013-$680B
2014-$485B
2015-$441B
2016-$585B
2017-$665B
2018-$779B
2019-$984B
2020-$3,131B

Source: Federal Reserve

In the aftermath of the Global Financial Crisis, the U.S. recorded an annual deficit of $1.4 trillion in FY2009. This was largely due to the $787 billion American Recovery and Reinvestment Act of 2009, which provided tax rebates and other economic relief.

In the economic battle against COVID-19’s impacts, the boundaries have been pushed even further. The annual deficit for FY2020 weighs in at a staggering $3.1 trillion, the largest ever. Contributing to this historic deficit was the $2 trillion CARES Act, which provided wide-ranging support to the entire U.S. economy.

Breaking Down the 2019 Fiscal Balance

Even in the years between these two economic crises, government spending still outpaced revenues. To find out more, we’ve broken down the 2019 fiscal balance into its various components.

Federal Spending

Total spending in FY2019 was roughly $4.4 trillion, and can be broken out into three components.

The first component is Mandatory Spending, which accounted for 62% of the total. Mandatory spending is required by law, and includes funding for important programs such as social security.

CategoryAmount (USD billions)Percent of Total Federal Spending
Health programs$1,121B25.5%
Social security$1,039B23.6%
Income security$301B6.8%
Federal civilian and military retirement$164B3.7%
Other$109B2.5%
Total mandatory spending$2,735B62.2%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

The largest category here was Health, with $1.1 trillion in funding for programs such as Medicare and Medicaid. Social security, which provides payments to retirees, was the second largest at $1.0 trillion.

The second component is Discretionary Spending, which accounted for 30% of the total. Discretionary spending is determined on an annual basis by Congress and the President.

Discretionary SpendingAmount (USD)Share of Total Federal Spending
Defense$677B15.4%
Transportation$100B2.3%
Veteran's benefits & services$85B1.9%
Education$72B1.6%
Health$66B1.5%
Administration of justice$59B1.3%
International affairs$52B1.2%
General government$51B1.2%
Housing assistance$49B1.1%
Natural resources and environment$44B1.0%
General science, space, and technology$32B0.7%
Community and regional development$27B0.6%
Training, employment, and social services$23B0.5%

Total discretionary spending


$1,338B


30.4%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

At $677 billion, the Defense category represents over half of total discretionary spending. These funds are spread across the five branches of the U.S. military: the Army, Marine Corps, Navy, Air Force, and Space Force.

The third component of spending is the net interest costs on existing government debt. For FY2019, this was approximately $327 billion.

Federal Revenues

Revenues in FY2019 fell short of total spending, coming in at approximately $3.5 trillion. These inflows can be traced back to six categories.

CategoryAmount (USD billions)Percent of Total Revenues
Individual income taxes$1,732B50.0%
Payroll taxes$1,247B36.0%
Corporate income taxes$242B7.0%
Other$104B3.0%
Excise taxes$104B3.0%
Customs duties$69B2.0%
Total revenues$3,464B100.0%

Figures may not add to 100 due to rounding. Source: Peter G. Peterson Foundation

Revenues overwhelmingly relied on individual income and payroll taxes, which together, accounted for 86% of the total. Corporate income taxes, on the other hand, accounted for just 7%.

Is America’s Debt a Cause for Concern?

The general consensus following the events of 2008 is that large fiscal stimulus (supported by government borrowing) was effective in speeding up the consequent recovery.

Now facing a pandemic, it’s likely that many Americans would support the idea of running large deficits to boost the economy. Surveys released in July 2020, for example, found that 82% of Americans wanted federal relief measures to be extended.

Looking beyond COVID-19, however, does reveal some warning signs. One frequent criticism of the ever-growing national debt is its associated interest costs, which could cannibalize investment in other areas. In fact, the effects of this dilemma are already becoming apparent. Over the past decade, the U.S. has spent more on interest than it has on programs such as veterans benefits and education.

us federal net interest costs chart

With low interest rates expected for the foreseeable future, the federal government is likely to continue running its large annual deficits—at least until the effects of COVID-19 have fully subsided. Perhaps after this crisis is over, it will be time to assess the long-term sustainability of America’s rising national debt.

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Gold

Comparing Recent U.S. Presidents: New Debt Added vs. Precious Metals Production

While gold and silver coin production during U.S. presidencies has declined, public debt continues to climb to historically high levels.

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Gold and Silver Coin Production During U.S. Presidencies

Recent U.S. Presidents: Debt vs. Coins Added

While precious metals can’t be produced out of thin air, U.S. debt can be financed through central bank money creation. In fact, U.S. debt has skyrocketed in recent years under both Democrat and Republican administrations.

This infographic from Texas Precious Metals compares the increase in public debt to the value of gold and silver coin production during U.S. presidencies.

Total Production by Presidential Term

We used U.S. public debt in our calculations, a measure of debt owed to third parties such as foreign governments, corporations, and individuals, while excluding intragovernmental holdings. To derive the value of U.S. minted gold and silver coins, we multiplied new ounces produced by the average closing price of gold or silver in each respective year.

Here’s how debt growth stacks up against gold and silver coin production during recent U.S. presidencies:

 Obama's 1st term (2009-2012)Obama's Second Term (2013-2016)Trump's term (2017-Oct 26 2020)
U.S. Silver Coins Minted$3.7B$3.3B$1.4B
U.S. Gold Coins Minted$6.7B$5.1B$2.9B
U.S. Public Debt Added$5.2T$2.9T$6.6T

Over each consecutive term, gold and silver coin production decreased. In Trump’s term so far, the value of public debt added to the system is almost 1,600 times higher than minted gold and silver coins combined.

During Obama’s first term and Trump’s term, debt saw a marked increase as the administrations provided fiscal stimulus in response to the global financial crisis and the COVID-19 pandemic. As we begin to recover from COVID-19, what might debt growth look like going forward?

U.S. Public Debt Projections

As of September 30, 2020, the end of the federal government’s fiscal year, debt had reached $21 trillion. According to estimates from the Congressional Budget Office, it’s projected to rise steadily in the future.

 2021P2022P2023P2024P2025P2026P2027P2028P2029P2030P
U.S. Public Debt21.9T23.3T24.5T25.7T26.8T27.9T29.0T30.4T31.8T33.5T
Debt-to-GDP ratio104.4%105.6%106.7%107.1%107.2%106.7%106.3%106.8%107.4%108.9%

By 2030, debt will have risen by over $12 trillion from 2020 levels and the debt-to-GDP ratio will be almost 109%.

It’s worth noting that debt will likely grow substantially regardless of who is elected in the 2020 U.S. election. Central estimates by the Committee for a Responsible Federal Budget show debt rising by $5 trillion under Trump and $5.6 trillion under Biden through 2030. These estimates exclude any COVID-19 relief policies.

What Could This Mean for Investors?

As the U.S. Federal Reserve creates more money to finance rising government debt, inflation could eventually be pushed higher. This could affect the value of the U.S. dollar.

On the flip side, gold and silver have a limited supply and coin production has decreased over the last three presidential terms. Both can act as an inflation hedge, while playing a role in wealth preservation.

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