A Country's Public Debt - Acceptable Or Can It Be Wiped Out?

[Wentworth]

With so many of the richer nations having cosmic levels of debt and the political posturing of necessary cuts; what are economists general views on acceptable levels of debt benchmarked against GDP?

Thinking of my own nation (UK), public debt is in the region of 175 Billion GBP. I'm told the present government's acceptance level is somewhere close to 40% of GDP, not sure what the level is at the moment but obviously staggeringly higher. This might not be the right moment to consider it but as with inflation, is it accepted thinking that we need public debt or could it in theory be wiped out? Do politicians think, in a Utopian world, that they would like no public debt, but in the real world feel it would not be worth the pain and public spending would suffer too much?

[Abrak]

You know you have asked enough questions that you could write a book in reply.

I would just make 3 comments....

Edit: I only just noticed you asked for 'economists' view and I am not an economist.

1) UK National Government debt is not high by historical standards...

http://www.ukpublicspending.co.uk/uk_natio...debt_chart.html

Of course bear in mind that personal private debt of UK individuals has gone through the roof and theoretically national debt should be private responsibility.

2) There is a very serious question about double standards here. In that you refer to rich nations and what they can do with national debt which is very different to poor nations. You look at the IMF's enforced policy response to a debt crisis in Thailand - high interest rates and balancing the fiscal budget - which is highly deflationary but helps repayment of external debts (in fact I seem to remembered they were guaranteed by the government) to the US which lowers interest rates to zero, has massive fiscal deficit but risks collapsing the dollar (which would be a quasi default).

3) To me somewhere somehow there is something wrong here. It has actually been the 2nd and 3rd world that have acted in general to finance excessive historic US growth. So they have been the bankers in general. I mean take Thailand again when it over borrowed it was forced to 'repent' through high interest rates and 'fiscal responsibility' now it is sitting on US$50bn of USTs it will probably get screwed by a quasi default. Now some people will simply say they have been stupid twice but others will look at it differently.

Edited October 7, 2009 by Abrak

[teletiger]

Are you confusing National debt with annual debt. As of December 2008, the UK's National debt was 1.34 trillion sterling. 103% of GDP. (this figure includes Public sector pensions and bailouts)

http://www.economicshelp.org/blog/uk-econo...-national-debt/

Regards.

[Wentworth]

My apologies - you're right I was getting myself confused. The 175 Billion probably stuck in my mind, but I think is the PSBR, but presumably pushes up the National Debt ie all the country's outstanding debt in gilts etc.

However, I'm still thinking about the overall amount that the UK owes to whoever. As I mentioned it's probably the problem the UK government would like to have by thinking about getting rid of the Public Debt. Would governments ideally like to get rid of the debt or is a certain level of payments based on percentage of GDP acceptable. Presumably they look at it as acceptable debt at say 40% of GDP as much as most people would think about a mortgage - a necessary evil. They probably don't want to have to cut public spending even over many years to bring the debt to zero as it's politically not a good idea.

[RubbaJohnny]

of course Uk and even more so USA have force to backup their arguments

Debts are higher in Belgium and Italywas only allowed in theEurp bendin the rules.

Its all based on confidence and who makes the rules.

[teletiger]

My apologies - you're right I was getting myself confused. The 175 Billion probably stuck in my mind, but I think is the PSBR, but presumably pushes up the National Debt ie all the country's outstanding debt in gilts etc.

However, I'm still thinking about the overall amount that the UK owes to whoever. As I mentioned it's probably the problem the UK government would like to have by thinking about getting rid of the Public Debt. Would governments ideally like to get rid of the debt or is a certain level of payments based on percentage of GDP acceptable. Presumably they look at it as acceptable debt at say 40% of GDP as much as most people would think about a mortgage - a necessary evil. They probably don't want to have to cut public spending even over many years to bring the debt to zero as it's politically not a good idea.

As Naam has quite rightly pointed out, national debt was never meant to be repaid, just serviced. (interest paid) When interest payments on that debt become a problem.....default occurs. Would any government want to fully repay national debt?....At what cost? Right now, a few Western Nations are looking in askance at the repayments. I.e.....staring default in the face.

http://en.wikipedia.org/wiki/List_of_count..._by_public_debt

Here's a list. The way national debt is calculated is different for many countries. More detailed analysis is needed for true figures.

Notice china down there, just above Gibraltar.

Regards.

[c64]

I'm lost here. That list isn't right at all....

Norway is high on the list with 52% national debt. How did they manage to calculate that when I know for a fact that they have in excess of 450 billion usd laying around.

Iceland seems to be a very good country with only 23% national debt ---> but weren't they almost bankrupt last year?

[flying]

People of all countries are often to told to live within their means.

Yet the same rules do not apply to governments.....or at least as Abrak said the powerful rule making ones.

The governments freely spend that which they don't have...Or I should say that which the people don't have.

The systems are broken...governments are too big & for the most part the higher debt is not being used on things most citizens/debtors would approve of in the first place. Governments make the debt & the citizens are shackled to it by way of higher taxes & inflation.

Or in the case of the Amerika the citizens & the rest of the world that seems foolish enough to buy the debt & help finance the wars they wage.

[samran]

A few years back Australia had the option of wiping out net government debt. There was a big discussion on whether or not it was worthwhile doing, the key reason being that no government debt meant liqiudity on the bond market, and effective interest rate setting became problematic.

I think they found a work around, but it was an issue that required a high level of government and private sector consultation.

See here for the general gist: http://debtreview.treasury.gov.au/content/...SMReview-01.asp

What I think most sensible governments try and aim for now is zero net debt over the course of the business cycle, easier said than done, but thats the policy.