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We've seen debt before, but not like this. Here's why major economies are drowning in red ink.
Editor's note: 7 Deadly Stories is a GlobalPost series on the main drivers of the global economy, all of which are facing severe challenges at once. Will the U.S. economy relapse? Is Europe finished? Will China, Inc. crash? Can Japan recover from disaster? How will the Middle East emerge from the ashes? How did the world become awash in debt? What is the true cost of climate change? These are the stories that are pushing the world economy, once again, to the brink.
BOSTON — Debt. It’s nearly as old as civilization.
It’s a menace that has kept serfs poor and made kings rich, a trap that has ruined countless lives, yoking many into slavery, prostitution or debtors prison.
As recently as the 1970s in the eastern Himalayas of South Asia, a poor man’s debt for his daughter’s wedding would cast the young bride herself into harlotry, according to David Graeber’s fascinating new book, "Debt, The First 5,000 Years." After the wedding night, she would spend a few months as the lender’s concubine. “Once he grew bored, [she’d] be sent off to some nearby timber camp, where she would have to spend the next year or two as a prostitute working off her father’s debt,” before returning to her husband.
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Increasingly, however, an entirely different debtor profile has come to prominence: the governments of major economies.
The United States is by no means alone in confronting this problem. Despite the partisan outrage in Washington, America’s debt burden is actually comparatively manageable.
In the 1980s, it was emerging countries like Argentina, Mexico and the Philippines that struggled with unsustainable debt loads. In the 1990s, the over-leveraged included Russia and the go-go economies of East Asia.
Those days are gone, however. Investors are increasingly turning to emerging countries as less risky alternatives.
Consider a list of the 20 countries with the most onerous debt loads — exceeding 75 percent of gross domestic product. Many rank among the richest, in terms of the relative income and living standards of their residents. Ten of these top 20 are members of either the European Union or the G20 — the latter, ostensibly, a group of the most powerful economies.
Of course, the top 20 most indebted include stalwart basket cases such as Zimbabwe (fourth most indebted, at 149 percent of GDP) Jamaica (seventh) and Sudan (12th). But they share that dubious honor with Italy (eighth), Singapore (ninth) and Belgium (tenth). Even the “rich” governments expected to pick up the tab for the euro zone’s debt crises make the ignominious list: France (14th) and Germany (19th). And Japan — viewed a quarter century ago as an unstoppable heavyweight — tops the list by a long shot.
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Even China is beginning to suffer from debt worries. While the government’s official public debt is a modest 17.5 percent, a closer look paints a grimmer picture.
As a Communist country, government-owned businesses account for the bulk of the economy. Those companies’ debts are ultimately the responsibility of the central government. “If you count all of these liabilities, then you get to an extremely high number, something like 150 percent of the Chinese gross domestic product, or more,” says Victor Shih, a political economist at Northwestern University. Shih also notes that by keeping growth strong, the country can avert a crisis.
These seemingly alarming debt levels raise the question, why now? Why is it that Europe, the United States, Japan and even China all face substantial debt challenges at this time in history?
Economists explain that there’s no single