Markets
Video: Donald Trump’s $20 Trillion Problem
The Money Project is an ongoing collaboration between Visual Capitalist and Texas Precious Metals that seeks to use intuitive visualizations to explore the origins, nature, and use of money.
Only a few days after Trump’s inauguration ceremony, the U.S. National Debt will creep across the important psychological barrier of $20 trillion.
It’s a problem that’s been passed down to him, but it certainly puts the incoming administration in a difficult place. The debt is burdensome by pretty much any metric, and the rate of borrowing has exceeded economic growth pretty much since the late 1970s.
How Trump deals with this escalating constraint will be a deciding factor in whether his administration crashes and burns – or ends up re-positioning America for greatness.
Donald Trump’s $20 Trillion Problem
Partisans will squabble about who added what to the mounting debt, but the reality is that none of that really matters. Both parties have kicked the can down the road for the last 40 years, and that has culminated in the current situation:
Back in 1979, the debt-to-GDP ratio was a modest 31.8%, and the federal government only had an outstanding tab of $826 billion. Fast forward to today, and the perpetual borrowing has added up.
The debt-to-GDP is now 104.2%, with the total debt burden nearing the $20 trillion mark.
In absolute terms, the debt is the highest it has ever been. Using the common measure of debt-to-GDP, the debt is the highest it’s been in 70 years. The last time it soared past the 100% mark was during the final year of WWII.
Granted, the situation isn’t as bad as Greece, Cyprus, or Japan – but it’s getting there:
In terms of debt-to-revenue, a measure that compares the national debt to the amount of taxes taken in by the federal government, the U.S. has the 2nd highest debt out of 34 OECD countries:
On a “per person” basis, each person in the U.S. owes $61,300 – the second highest in the world. Per taxpayer, however, that amount balloons to $167,000.
Changing Rhetoric
So what does Trump think of all this debt business? It’s hard to say, because his rhetoric has changed.
At the start of his campaign, he made it clear that debt would be a top issue for his administration. In February 2016, Trump said that the U.S. was becoming a “large-scale version of Greece” and that tackling the debt would be “easy” with a more dynamic economy. In April 2016, he said he could pay off the debt after eight years in office.
This rhetoric aligns with the official GOP platform, which says that the national debt has “placed a significant burden on future generations”, calling for a “strong economy” and “spending restraint” to pay it down.
But since then, Trump’s views may have changed.
His most recent economic plans include $1 trillion in infrastructure and $5 trillion in tax cuts – and they could increase debt by anywhere from $5.3 to $11.5 trillion. He’s also said that the U.S. will never have to default because it can simply “print money”.
How Trump will choose to deal with the debt is a big question – and only time will tell if his actions will make America great again.
About the Money Project
The Money Project aims to use intuitive visualizations to explore ideas around the very concept of money itself. Founded in 2015 by Visual Capitalist and Texas Precious Metals, the Money Project will look at the evolving nature of money, and will try to answer the difficult questions that prevent us from truly understanding the role that money plays in finance, investments, and accumulating wealth.
Markets
The European Stock Market: Attractive Valuations Offer Opportunities
On average, the European stock market has valuations that are nearly 50% lower than U.S. valuations. But how can you access the market?
European Stock Market: Attractive Valuations Offer Opportunities
Europe is known for some established brands, from L’Oréal to Louis Vuitton. However, the European stock market offers additional opportunities that may be lesser known.
The above infographic, sponsored by STOXX, outlines why investors may want to consider European stocks.
Attractive Valuations
Compared to most North American and Asian markets, European stocks offer lower or comparable valuations.
Index | Price-to-Earnings Ratio | Price-to-Book Ratio |
---|---|---|
EURO STOXX 50 | 14.9 | 2.2 |
STOXX Europe 600 | 14.4 | 2 |
U.S. | 25.9 | 4.7 |
Canada | 16.1 | 1.8 |
Japan | 15.4 | 1.6 |
Asia Pacific ex. China | 17.1 | 1.8 |
Data as of February 29, 2024. See graphic for full index names. Ratios based on trailing 12 month financials. The price to earnings ratio excludes companies with negative earnings.
On average, European valuations are nearly 50% lower than U.S. valuations, potentially offering an affordable entry point for investors.
Research also shows that lower price ratios have historically led to higher long-term returns.
Market Movements Not Closely Connected
Over the last decade, the European stock market had low-to-moderate correlation with North American and Asian equities.
The below chart shows correlations from February 2014 to February 2024. A value closer to zero indicates low correlation, while a value of one would indicate that two regions are moving in perfect unison.
EURO STOXX 50 | STOXX EUROPE 600 | U.S. | Canada | Japan | Asia Pacific ex. China |
|
---|---|---|---|---|---|---|
EURO STOXX 50 | 1.00 | 0.97 | 0.55 | 0.67 | 0.24 | 0.43 |
STOXX EUROPE 600 | 1.00 | 0.56 | 0.71 | 0.28 | 0.48 | |
U.S. | 1.00 | 0.73 | 0.12 | 0.25 | ||
Canada | 1.00 | 0.22 | 0.40 | |||
Japan | 1.00 | 0.88 | ||||
Asia Pacific ex. China | 1.00 |
Data is based on daily USD returns.
European equities had relatively independent market movements from North American and Asian markets. One contributing factor could be the differing sector weights in each market. For instance, technology makes up a quarter of the U.S. market, but health care and industrials dominate the broader European market.
Ultimately, European equities can enhance portfolio diversification and have the potential to mitigate risk for investors.
Tracking the Market
For investors interested in European equities, STOXX offers a variety of flagship indices:
Index | Description | Market Cap |
---|---|---|
STOXX Europe 600 | Pan-regional, broad market | €10.5T |
STOXX Developed Europe | Pan-regional, broad-market | €9.9T |
STOXX Europe 600 ESG-X | Pan-regional, broad market, sustainability focus | €9.7T |
STOXX Europe 50 | Pan-regional, blue-chip | €5.1T |
EURO STOXX 50 | Eurozone, blue-chip | €3.5T |
Data is as of February 29, 2024. Market cap is free float, which represents the shares that are readily available for public trading on stock exchanges.
The EURO STOXX 50 tracks the Eurozone’s biggest and most traded companies. It also underlies one of the world’s largest ranges of ETFs and mutual funds. As of November 2023, there were €27.3 billion in ETFs and €23.5B in mutual fund assets under management tracking the index.
“For the past 25 years, the EURO STOXX 50 has served as an accurate, reliable and tradable representation of the Eurozone equity market.”
— Axel Lomholt, General Manager at STOXX
Partnering with STOXX to Track the European Stock Market
Are you interested in European equities? STOXX can be a valuable partner:
- Comprehensive, liquid and investable ecosystem
- European heritage, global reach
- Highly sophisticated customization capabilities
- Open architecture approach to using data
- Close partnerships with clients
- Part of ISS STOXX and Deutsche Börse Group
With a full suite of indices, STOXX can help you benchmark against the European stock market.
Learn how STOXX’s European indices offer liquid and effective market access.
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