There’s been lots of concern about sovereign debt in Europe this week, centered on four nations now dubbed the “PIGS”: Portugal, Ireland, Greece and Spain. I suppose the “PIGS” acronym is a metaphor for their appetite for debt.
I thought it might be interesting to take a look at a few key economic indicators for these countries and see how the U.S. stacks up against them. The following spreadsheet compares their balance of trade per capita, their national debt per capita and their national debt as a percentage of GDP. (National debt includes both public debt – that held by its citizens – and external debt – held by foreign investors.) I’ve included the national debt per capita because, although economists are fond of expressing national debt as a percentage of GDP, it must be remembered that it’s not the GDP that will ultimately have to repay the debt; it’s the people.
As you can see, Ireland is a bit of an anomaly. Although it has an enormous trade surplus, the highest in the world, it also has the worst national debt problem by far, at 1400% of GDP, or almost $595,000 per person in Ireland. I can’t explain Ireland’s predicament, but it makes me wonder whether Ireland’s staggering trade surplus has been an orchestrated plan by the rest of the world to provide Ireland a way out of their fiscal problems.
That leaves Portugal, Greece and Spain. All three have very large trade deficits per capita. The U.S. isn’t far behind.
All three have national debts that are near or above 300% of GDP. By that measure, the U.S. has a ways to go. But in per capita terms, the U.S. is on a par with Portugal.
So is the U.S. a “piglet?” Though not at the same level of concern about the potential for default by the “PIGS,” concern about America’s debt is higher than ever. Ratings agencies are threatening to beginning cutting our credit rating if the debt problem isn’t addressed soon. Perhaps the only thing that makes U.S. debt a “safe haven” is that everyone knows that, unlike the “PIGS,” the U.S. can simply print money to pay its obligations if all else fails. But that strategy would not be without serious risk to the U.S. economy.
Let’s hope the trough runs empty before we can baloon to “PIG” status.