Sluggish and indebted economies, part 2

US & BRIC nations, comparison of gross government debt to GDP ratio

A reader asked about debt levels of some developing countries, the BRIC nations specifically. Gross government debt to GDP ratios for The United States and The BRIC nations are presented above. Clearly America, like most developed nations, carries relatively high levels of debt when compared to developing nations. What it all mean?

Think about growth in GDP for both developed as well as developing nations. When we talk about developed nations it’s rare to see GDP rates much above 3% or so. When these rates are exceeded Central Bankers, beginning to worry about inflation, typically raise interest rates.

With developing nations its a complete different story; GDP rates exceeding those of developed nations and sometimes approaching 10% are common. Of course many developing nations have high inflation rates but they are also creating a productive infrastructure with that money.

What’s the United States – and many developed nations – do with all the extra money? Fritter it away, I’m afraid. Housing bubbles. Stock market bubbles. Extensive social programmes and, of course, war. Nothing productive comes of that.

Just be careful about investing in BRIC nations, as their markets are very volatile compared to developed countries.

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