What happens if we extrapolate current trends to 2050? What will debt to gdp ratios look like around the world? A few estimates:
1. For 25 major OECD economies, the ratio will rise to 47 percent by 2010 and 139 percent by 2050. Most of these countries would risk eventual downgrading to junk status.
2. In 2050 Japan would have the highest debt to gdp ratio, namely 718 percent. The Czech and Poland would have the next most serious problems.
3. Among the current Eurozone countries, Germany would fare the worst with a ratio of 307 percent. The ratio in the US would be 158 percent.
4. For purposes of contrast, Great Britain, right before WWII, a fiscally pressed time, had a debt to gdp ratio of 188 percent.
5. The countries with the smallest future ratios include Luxembourg, the UK, Sweden, Spain, Ireland, and Australia. Those countries have more favorable demographics and smaller burdens from their pension systems. Those ratios lie in the range of 40 to 60 percent.
6. The fiscal impact of aging far outweighs the costs of German unification.
OK, this is crude extrapolation. But keep in mind that social security benefits are often fixed by law or politically hard to alter. Growth rates might improve, but on the other hand longevity could increase.
The estimates are from Standard and Poor’s, reported in The Financial Times of 1 April 2004, “Sovereign Ratings Under Threat.” Sorry I have no permanlink from this antiquated Parisian computer terminal but it is subscription only anyway.
Addendum: Alex suggests I could have titled the post “r>g,” don’t worry if you don’t get the joke.