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The Big Picture
We are in a credit crunch, so Western government need to reduce the mountain of debt that caused it – gradually – rather than add to it.
When it comes to sovereign debt, Morgan Stanley points out that it’s not GDP but whether the governments have the revenues to service their debt that matters. National debts are therefore better scaled against the maximum level of revenues that governments can realistically obtain from using their tax-raising power to the full. On this measure, the US federal debt no longer compares quite so favourably with that of European governments. The U.S. government’s debt is 53% of GDP, one of the lowest ratios among developed nations, but its debt as a percentage of revenue is 358%, one of the highest. The UK debt/revenue ratio is 169% almost the same as Germany’s.
Goldman Sachs' leading indicator rolls over.