To paraphrase US Senator Everett Dirksen, a trillion here, a trillion there, pretty soon it adds up to real money.
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Government Debt
Naturally the size of the debt matters and it’s percentage of GDP, however, what is becoming clear now is that the present danger looms in simply servicing the interest rate payments on that debt.
As the cost of borrowing is increasing so interest payments on countries debts are going up.
If you think nobody cares if you're alive, try missing a few car payments.
Earl Wilson, New York columnist
Why are interest rates rising?
Simply because the Central Banks are raising them. They are doing this for two purposes. Firstly, they must be seen to tackle inflation. Secondly, they are looking at the jobs growth figures and see a strong demand. They fear workers successfully organising and demanding higher wages to offset the obvious inflation.
This is about the worse thing that can happen. However, the path of interest rate rises will lead to social unrest anyway.
Using this National Debt Clock plus each countries ten year yield as date of writing, I calculated the rough percentage of GDP that is being spent to service the debt (ie pay the interest payments). Looking at countries with debt over a $trillion.
In descending order
- Brazil 14.5%
- Italy 7.2%
- US 5.7%
- UK 4.25%
- Spain 4%
- France 3.1%
- China 1.69%
- Japan 0.59%
To put this in some context the Bank of England has a target not to exceed 3%. Political observers have noted that when this percentage rises to 6-7% then it is a good forecast of social upheaval domestically.
We are already seeing political upheaval in both Brazil and Italy.
Washington Post
Interest on debts grow without rain.
old Yiddish proverb
For the UK this means a ten year yield of 5% max. The US are already nearly at this mark so any further rate rises will lead to renewed unrest in the US.
Danger also looms in the global market. Many countries are already grappling with high ten year yields. Countries like Hungary, Greece, South Africa are struggling with high interest payments.
There are four things people have more of than they know; sins, debt, years and foes.
old Persian proverb
I wrote this last year;
We have had ten years of low interest rates, and they are now increasing again. If this continues it will make the debts more expensive. This will be paid for by the taxpaying citizens. This will be in a number of cost cutting measures and a general worsening of living standards for the majority.
Thomas Fuller, 17th Century English clergyman and author:
Debt is the worst poverty.
