Chart of the Day: Developed economies’ debt levels by sector
This is a great chart below via the Wall Street Journal. It shows the total debt to GDP ratios for the largest developed economies in the world broken down into four sectors: households, non-financial corporations, financial institutions and government.
The takeaways are:
- The UK and Japan are far and away the most indebted nations. Japan’s biggest areas are government and financial sector debt. The UK has a very large financial sector.
- As I mentioned yesterday, Canada has high household debt, as does Australia. Unlike the UK and the US which also do, these economies have not seen house price declines
- Italy and France have low household sector debt which suggests that private sector deleveraging is less of a factor in debt deflation dynamics irrespective of the nonfinancial corporate sector.
- Germany, Canada, the US and Australia have the lowest aggregate debt levels.
Remember that a government deficit that creates debt is always mirrored by a nongovernment surplus. So these aggregate numbers don’t tell the full story since you would need serious private sector credit growth to offset government deficits. Another point to remember is that the UK banks in particular have a lot of foreign currency assets that create concomitant liabilities.
Source: U.S. Leads Other Nations in Deleveraging
Also note, I did an analysis on deleveraging using this sectoral analysis in 2009 to see how the US debt levels changed during and after recession See "A brief look at the Asset-Based Economy at economic turns"
Much of the UK financial sectors debts have been accumulated in the last ten years. This is why the UK really could be considered the weakest currency as it has a pathetic savings rate as a result of supply side policies and leaves the nation vulnerable to hot money. As long as it does not have to resort to QE or printing money to keep the books balanced it might hold on to that hot money, Though it leaves the UK banks exceptionally vulnerable to a credit crunch.
Private debt was not seen as a problem even as it inflated a property bubble beyond the reach of most first time buyers. Problems were inevitable.
Strip out the italian government debt and the overall debt figures are pretty good compared to the other nations listed.