Written by Elliott Morss
In working overseas and doing research on countries, I have always been struck by striking differences and what explains them. Here, I look at four countries: China, Greece, Japan, and the US. Why these countries? The US is the aging empire. In the 70s, it was thought Japan would be next, but China is now is expected to succeed the US. And Greece? Greece has been in the news recently, and there are other reasons. So let’s start by looking at a few common yardsticks for economic well-being.
Consider first government debt. In its reports on Greece, the IMF has said repeatedly that a debt to GDP ratio of 160% cannot be sustained. And indeed, the primary purpose of the “haircut” forced on its private sector creditors was to lower Greece’s debt ratio. Look at Table 1. It provides the debt to GDP ratios for our 4 countries. Japan – is that a typo? No. Japan a debt ratio far higher than Greece. China’s debt is low – 132nd out of 164 countries. More on this later.
There is much concern about the size of government deficits and the tradeoffs between stimulus and austerity. How do our countries stack up on this measure?
Once again, Japan leads, with the US just behind. Greece? Not looking so bad. But what goes with Japan? Nobody is talking about a Japanese bankruptcy.
Current Account and Balance Sheet
If a country’s exports exceed its imports, maybe it can build up enough reserves so as to “neutralize” large government debts/deficits.
So look at Table 3. It gives both current account data (a slightly more complete picture of a country’s international transactions than just the trade balance) and balance sheets (assets and liabilities in billions of US$). Things are now a bit clearer.
These data go at least part of the way to explain why Greece is having serious “survival” problems while Japan is not. Greece is running a large international transactions deficit while Japan is running a surplus. Greece does not have its own currency, so deficits reduce its money supply…. Also, Greece’s liabilities exceed its assets. Japan is quite different. It has a trade surplus and balance sheet with a $3 trillion balance.
But let’s look a bit more closely at Japan. Who buys all its debt? Unlike the US and European investors who put approximately 40% of their assets in the stock market, Japanese investors put only 10% in equities. Why? Because the Japanese stock market has not performed well. For the 20 years ending at the beginning of 2008, the Nikkei 225 has fallen 28%. Over the same period, the S&P 500 increased by 476%. So what did the Japanese do with their money? They put it in banks. And Japanese banks invest 75% of their money in government debt. And so the debt gets financed, even though the debt is enormous.
How about the US, the aging empire? High government deficits and debt plus a current account deficit and a $3 trillion balance sheet deficit? Well, the world apparently likes to hold US debt, both dollars and government securities. Will this continue? Probably for a while.
I recently did a study of dangerous addictions. I concluded the most dangerous were smoking, overeating, and drinking.
How do our four countries score on this well-documented killer? Table 4 shows that the US has the fewest smokers while more than 60% of men in China and Greece smoke.
Overeating is a dangerous addiction leading to obesity and associated health complications. And here, among our four countries, the US is in a class by itself. One has to wonder whether its low smoking prevalence has anything to do with it. The Harvard Medical School estimates that the average weight gain for people who stop smoking is 14 pounds.
As I have suggested elsewhere, alcohol is an under-appreciated killer. Smoking kills the smokers. Drunks kill while driving and destroy families.
Alcohol destroys families. Table 6 provides liters of alcohol (beer, wine and spirits) consumed by drinkers in our four countries. These are not shockingly high numbers: male drinkers in Russia consume more than 35 liters of alcohol a year.
Greece is struggling to survive in the Eurozone. It won’t. The growing debt in Japan is a bomb waiting to go off. The US reflects all the signs of a country in decline. China continues to grow more rapidly than any other nation. But in the not-too-distant future, its trade surplus will become a deficit because of the demands of a growing middle class. That will have important repercussions.
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