Monday, October 31, 2011

Is The West Going Bankrupt ?

Hantu Laut

Be it an individual, a corporation or a nation, the consequence of over spending and over borrowing could be fatal.Many Western nations are now in deep financial trouble due to over spending.

Being highly geared is risky business.Many eurozone nations have debt to GDP ratio of over 100%, some as high as 400%.

Greece, the first victim of financial gluttony is having problems meeting its debt repayments. The financial debacle sent shock waves to members of the eurozone and financial institutions, which may have to give huge write downs and moratorium on repayments to keep the country afloat.The rescue plan announced in May by IMF and the European Union have not had its desired effect.The 110 billion euros rescue package came with expressed conditions of Greece cutting its public spending and boosting tax revenue.Plan to cut spending was met with violent street protests by unemployed youths.

Greece external debt is now at 182 % of GDP.Every man,woman and child in Greece now owed the rest of the world $53,984.per capita. Greece's trouble is not so much the debt to GDP ratio but more due to a stagnated economy, negative growth, living beyond its means (budget deficit) and rising debt level.In 2010 Greece showed a negative growth of - 4.5 %.Rising unemployment had contributed to violent and deadly street protests.

There is much talk that Greece's economic debacle would bring the demise of the euro currency club.Many US investment funds have taken flights pulling their money out of the eurozone to safer havens.S&P has downgraded Greece's debts to junk status.

Greece, is just tip of the iceberg, many European countries are in for much bigger trouble should they not able to service their debts.

Countries in the economic doldrums that may need lifeboats are Portugal,Spain,Ireland and Italy with Ireland faring the worst with current debt of 1382% 0f GDP.

In term of GDP the UK is at No.2 of the most indebted nation in the world, a whopping 413% of GDP and its every citizen owing the rest of the world $146,953 per capita.The country that wears the top hat for indebtedness is Ireland with a whopping per capita debt of $566,756.

With the exception of Japan, all 20 top debtors of the world are the highly industrialised countries in North America and Western Europe.

Surprisingly, the world's biggest debtor in term of value came out looking much healthier than most European countries.The US stood at No.20 for indebtedness and 101% of GDP and per capita debt of $48,258.It has raised its debt ceiling to borrow more money and its continuing deficit and slow growth rate would eventually render it a sick bill of health.If the US goes under the rest of the world goes with it.China and Japan hold $1.7 trillion of US debts.

It is not possible to foresee the next financial crisis, where it will originate from and how severe the impact on the world's economy.With available data, the low growth and highly geared Western economies appear to be likely candidates triggering the next financial crisis, probably bigger than the 2008 financial meltdown with some countries in the West going bankrupt.

The West have been living beyond its means for far too long at the expense of the poorer East.It's about time they trim their waistline.


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kittykat46 said...

The highest Sovereign Debtor as a percentage of GDP, and 2nd highest in $ value in the world is Japan - $ 8.5 Trillion US Dollars or 198% of Annual GDP.

The only reason it doesn't attract headlines is that it is largely domestically funded, drawing off the Japanese people's massive savings funds.
There is little risk of Japan getting into trouble trying to pay back foreign countries.

Purple Haze said...

The big news is that Greece is telling the EU to take a hike as they want a referendum of the Greek people to decide if the austerity measures and even membership in the EU is what they (the Greek people) want.

If the referendum votes "NO", could this be the beginning of the end of the EU or provoke other less fiscally disciplined member countries to exit ?