How much debt can a country have before it will default on its debt? Economist Kevin Hassett has collected the data for various countries and put it on a chart. (The U.S. is the red bar on the Hassett's chart.)
The chart compares the external debt (debt held by foreigners) of the U.S. to the external debt of middle-income countries that experienced default (or restructuring) between 1970 and 2001. The debt is scaled by GNP, and reflects the total debt outstanding in the year of default. The conclusion is chilling. The current U.S. debt is now higher relative to our national income than it was for the typical middle-income countries that defaulted on their debt during the 31 years of this sample. For example, there were so many Latin American countries that defaulted, that the chart aggregates all of the countries in the single category. Although Latin America has acquired a reputation for fiscal instability and fiscal insanity, we can see from the chart that the U.S. is now in worse shape than the typical Latin American country that defaulted.
Actually there are only two countries that defaulted who racked up more debt than the U.S. These countries were Jordan in 1989 and Egypt in 1984. This is not exactly the countries we would like to be compared to.
I realize that it is hard for any of us to imagine that one day, we will wake up to find that our country is bouncing checks. At the moment, foreign lenders are still willing to attend our Treasury auctions and continue to fund our country. But Kevin Hassett says that it is certainly possible that a precipitating event might change their attitude towards America and we would begin to default, like these others countries has done in the past.
So what might be such a precipitating event? Kevin Hassett says that one likely candidate would the passage of a massive expansion of entitlements. He believes this could easily set off the kind of panic that has devastated debt markets in the past.
Members of Congress, are you listening? I'm Kerby Anderson, and that's my point of view
The chart compares the external debt (debt held by foreigners) of the U.S. to the external debt of middle-income countries that experienced default (or restructuring) between 1970 and 2001. The debt is scaled by GNP, and reflects the total debt outstanding in the year of default. The conclusion is chilling. The current U.S. debt is now higher relative to our national income than it was for the typical middle-income countries that defaulted on their debt during the 31 years of this sample. For example, there were so many Latin American countries that defaulted, that the chart aggregates all of the countries in the single category. Although Latin America has acquired a reputation for fiscal instability and fiscal insanity, we can see from the chart that the U.S. is now in worse shape than the typical Latin American country that defaulted.
Actually there are only two countries that defaulted who racked up more debt than the U.S. These countries were Jordan in 1989 and Egypt in 1984. This is not exactly the countries we would like to be compared to.
I realize that it is hard for any of us to imagine that one day, we will wake up to find that our country is bouncing checks. At the moment, foreign lenders are still willing to attend our Treasury auctions and continue to fund our country. But Kevin Hassett says that it is certainly possible that a precipitating event might change their attitude towards America and we would begin to default, like these others countries has done in the past.
So what might be such a precipitating event? Kevin Hassett says that one likely candidate would the passage of a massive expansion of entitlements. He believes this could easily set off the kind of panic that has devastated debt markets in the past.
Members of Congress, are you listening? I'm Kerby Anderson, and that's my point of view
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