The Trouble with Debt-to-GDP Ratios

From a Morgan Stanley report, summarized on Bloomberg, on the trouble with debt-to-GDP ratios, and the likelihood of sovereign default.

Mares said debt as a percentage of gross domestic product is a false indicator of an economy’s health given it doesn’t reflect governments’ available revenue and is “backward- looking.” While the U.S. government’s debt is 53 percent of GDP, one of the lowest ratios among developed nations, its debt as a percentage of revenue is 358 percent, one of the highest, the report said. Conversely, Italy has one of the highest debt- to-GDP ratios, at 116 percent, yet has a debt-to-revenue ratio of 188, Mares said.

“Outright sovereign default in large advanced economies remains an extremely unlikely outcome, in our view,” the report said. “But current yields and break-even inflation rates provide very little protection against the credible threat of financial oppression in any form it might take.”

More here. [-]

Related posts:

  1. Growth in a Time of Debt
  2. Trouble with Charts: Debt/Income and Retail Sales
  3. Frontline: Ten Trillion and Counting — The U.S. Debt
  4. The Debt-ification of the World: 1999-2010
  5. Tracking Global Leverage: External Debt to GDP