Debt is not that bad

Dear Editor,

Re: Creative accounting 

Look here. 53% debt to G.D.P. ratio is actually quite healthy compared to other countries. By comparison, the United States has a debt to G.D.P. ratio of over 100% and Japan has a ratio of 227%.

The usual retort is “oh but those countries are richer and can pay off their debt”. So my question is why haven’t they? 

American debt has been hovering at 100% for about 30 years.

The reality is the debt itself is not the issue. It is the ability to pay off the debt. The debt-servicing figure. An analysis needs to be done on foreign reserves and the debt servicing figures. 

The debt to G.D.P. ratio doesn’t really tell us anything other than exactly that - the ratio of debt to that country’s G.D.P. 

Samoa’s G.D.P. is about 2 billion per year so that if our overall debt (not debt per year, but overall total debt accumulated over 30 years or so) is $1.1 billion, then that is how the figure of 53% is arrived at.

However, it is always good to get the ratio down to under 50%. 

New Zealand is actually a good example to follow. Their debt to G.D.P. ratio is 20%. Back when Helen Clark was PM it was around 17%.


PS Jeffrey

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