With federal spending far exceeding federal revenue, we have to decide if more borrowing or federal taxation should span the gap.
Looking at Italy’s debt and beyond at the world, we can worry about massive borrowing that reflects a larger proportion of a country’s GDP.
The six facts that summarize world debt identify the big borrowers, the risky borrowers, and the criteria for deciding how much to worry.
Typically we look at our national wealth through a fiscal or GDP lens when we might get a better picture by using a balance sheet.
With the U.S. an increasingly large contributor and an example of “debt creep,” world debt is dominated by five countries.
Coffee will soon cost 20% more in Greece because the terms of a fourth Greek bailout require higher taxes and less government spending.
Comparing debt to GDP is like looking at a mortgage loan and household net worth. It can help us decide when a sovereign debt became too large.
With excessive sovereign debt and bailout problems, Greece may have to switch to a new drachma and endure financial turmoil at home and in the eurozone.