Tuesday, March 16, 2010

Moodys Puts the US, UK and Germany on Credit Watch

Moodys, still smarting from its dismal ratings performance during the 2008-2009 financial crisis, has put the US, UK and Germany on notice that they are in danger of loosing their AAA credit rating if they don't restrain their borrow and spend policies.  So who are some of the world's biggest offenders?  The below list shows the world's biggest debtor nations as a % of GDP as of the 3rd quarter 2009.

Country External Debt % of GDP Gross External Debt 2009 GDP (est)
United States95.9% $13.67 trillion$14.25 trillion
Australia108.8% $891.26 billion$819 billion
Hungary124.2%S$231.33 billion$186.3 billion
Italy154.6%$2.71 trillion$1.76 trillion
Greece175.3%$594.60 billion$339.2 billion
Spain184.7%$2.53 trillion$1.37 trillion
Germany189.4%$5.33 trillion$2.81 trillion
Finland205.7%$376.8 billion$183.1 billion
Norway208.9%$577.80 billion$276.5 billion
Hong Kong218.8%$659.27 billion$301.3 billion
Portugal231.5%$538.1 billion$232.4 billion
France247.2%$5.22 trillion$2.11 trillion
Austria268.9%$869.13 billion$323.2 billion
Sweden275%$916.42 billion$333.2 billion
Denmark315.2%$627.6 billion$199.1 billion
Belgium345.6%$1.32 trillion$381.4 billion
Switzerland390%$1.23 trillion$316.1 billion
Netherlands395.6%$2.58 trillion$652 billion
United Kingdom427.6%$9.26 trillion$2.17 trillion
Ireland1,352%$2.39 trillion$177.3 billion

Most of the countries outside the EU control their own currencies and can print money to cover their debts, and their citizens will have to live with the consequences. But it is hard not to conclude there is a looming world government debt crisis looming similar to what we are seeing in Greece today. Conventional wisdom is that government bonds are the safest investments in the world because they have the ability to tax and print money. But I'd feeling safer buying the debt of companies like Berkshire Hathaway, Exxon, Coke, Pepsi, Nestle, Microsoft, Cisco, or Proctor and Gamble who have strong market positions and financial discipline rather than governments who have left their finances deteriorate to these sorry states. What do you think?


  1. Percentages are interesting. Carmen Reinhart, University of Md. professor, has co-authored a book recently that shows the importance of a country's debt relative to GDP. According to the research in the book the U.S. is close to the tipping point where countries go into slow growth mode.
    Her site is http://terpconnect.umd.edu/~creinhar/
    I think you are right, buying the debt of well run companies may be the better choice down the road.

  2. Thanks for the reference. I'll have to check out Reinhart's book. I've those same warnings on the US debt sounded by a number of economists.