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Worldwide Wartime Levels of Debt, Without World Wars

Friday November 2nd, 2012   •   Posted by Craig Eyermann at 7:59am PDT   •  

How bad has the growth of debt become among the world’s major nations? So bad that Christine Lagarde, the managing director of the International Monetary Fund, a lender of last resort for distressed nations, has become extremely concerned about the level of debt overhang:

Ms Lagrde had earlier said that public debt in developed countries standing at “wartime levels” is the biggest threat to the global economy as they left governments at the mercy of the markets and needed to be reduced.

“Let us not delude ourselves. Without growth, the future of the global economy is in jeopardy, and perhaps the greatest roadblock will be the huge legacy of public debt, which now averages 110 percent in advanced economies, pretty much wartime levels,” Ms Lagarde said.

“And this leaves governments highly exposed to subtle shifts in confidence,” she said.

To help drive home the point, Global Macro Monitor excerpted the following figures from a recent IMF report:

The first figure shows the total public debt outstanding for the U.S. as a percentage of GDP since 1880 – we see that the U.S. national debt-to-income ratio is now on par with the level of debt recorded during World War 2.

The second figure compares the U.S. debt-to-GDP ratio with those of other developed nations. (Note: this differs from the Economist’s Global Debt Clock that we featured earlier this week in that it accounts for the U.S. full public debt outstanding.)

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November 2012