Tuesday, April 12, 2011

Worthwhile Canadian Initiative: America's Dangerous Debt

Worthwhile Canadian Initiative: America's Dangerous Debt

debt levels of different countries;

So how does Canada stack up against the United States when it comes to federal debt levels? I’ve put together three graphs with which to compare the evolution of the gross federal government debt of Canada and the United States. Figure 1 plots the ratio of Canadian gross federal government debt to United States gross federal government debt. Figure 2 presents the ratio of federal government debt to GDP for each country. Figure 3 plots the ratio of the debt to GDP ratios. The evidence shows that while Canada performed more poorly on the debt front than the United States during the period from the mid 1960s to the 1990s, it has since done a better job. The ratio of Canadian to United States federal debt declined from the early 1980s (Figure 1) but this does not take the size of the economy into account, which occurs in Figure 3. Figure 3 shows that after adjusting for the size of the economy, Canada’s debt situation relative to the United States improves in a consistent and dramatic fashion after 1996. Canada has a higher gross debt to GDP ratio than the United States after 1981 and its debt rises faster than GDP until 1996. After 1996, Canada’s gross debt to GDP ratio begins to fall (as does the American ratio) but the American ratio then begins to rise in 2000 and a crossover occurs between 2001 and 2002.
Figure 1
Figure 2
Figure 3
For the United States, after the improvements in its debt situation that occurred from 1995 to 2000, the years since have seen a steady deterioration of its fiscal position. Its gross debt to GDP ratio is now nearly twice that of Canada’s (about 93 percent compared to 54 percent). By way of comparison, at the end of 2010, Portugal’s gross debt to GDP ratio was 83 percent while Greece’s was 130 percent. However, when net debt is considered, Portugal was at 79 percent, Greece at 110 percent and the United States at 66 percent. The United States is not yet in Euro-bailout territory especially given its untapped fiscal capacity (Federal Sales Tax anyone?) and it is in better shape than Japan or Italy. Nevertheless, it is in dangerous economic territory given its slow steps to grapple with its debt and deficit and so are we given our economic dependence on the United States.

So when will defense, security, foreign meddling be reduced, so much to gain by cuts in imperial ambitions!

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