Wednesday, February 17, 2010

The Unsustainable Truth

Countries all over the world are grappling with huge and mounting amounts of debt that looks to be unsustainable in the long run. The most problematic is the one of Greece where the country is grappling with high government debt relative to its GDP and threatening to undermine the stability of Europe. But other countries like Spain, Ireland, and Portugal and to a lesser extent Italy are also in trouble.
Here in the United States, we are also not immune to the fluctuations of Europe debt and we have our own huge debt to tackle. But Greece because of its low export base and high Government sector, it has been promising its people way beyond what can be easily sustained by the Government (same as we are doing here is the U.S. as will be mentioned later on). Japan is another case where the debt to GDP ratio will top soon 200 percent. This means that they will have twice the amount of debt as what their country can produce in a year.

The main problem here is that in Europe and in Japan, the population growth is either slowing or going in the negative territory and the people are living longer. So more and more old people will be depending on the younger people to pay for their welfare. This increased dependence on young people will further force them to postpone their marriage and having kids and thus more debt will be issued by their governments to sustain the welfare state in those countries.

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