Government Debt

August 28, 2015

 

Any reasonable investor will tell you that one of the keys to financial success, is to make more than you spend. Sounds simple right? Any person who spends considerably more than they bring in, can find themselves in  a very difficult situation, sometimes facing bankruptcy. What happens when a country follows this trend?

 

A country that is taking on debt considerably faster than its ability to repay that debt is a following a dangerous trend. If the country is taking on debt (from the world bank or other countries) at a greater rate per year than their GDP, they are going in the wrong direction and this situation is difficult to return from. 

 

One such country is Japan where the gross government debt has climbed above 200pc of gross domestic product. This problem is being compounded by the fact that (especially in Japan but also many other countries around the world) there is an aging population expecting to retire and hence reduce the GDP further. 

 

Here in Australia we are operating at one of the more competitive debt to GDP ratios. The total Australian government debt is around $0.684Tn and rising and the GDP is $1.595Tn making a ratio of 42%. Compared to other countries this is far more stable and sets Australia apart as a very desirable market for investment. 

 

This world economic condition holds considerable amounts of unknown variables and concern. Taking a macro-perspective when choosing stable markets for invests is more important than ever. 

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