Concerns About Debt Growth

The Debt to GDP ratio is a very useful and important index to help us evaluate economics of a country or the whole world. It is just like the financial leverage ratio of a big company. We could see GDP as revenue and debt as common interest-bearing liabilities. Therefore, if the ratio is high, which means that the big company has a lot of debt, then it could also have a lot of interest payable that the revenue (GDP) is not able to cover. This situation will bring about financial crisis. By comparison, if the ratio is low, the big company will be able to resist it.

The graph above gives us an overview of the actual change of the Debt to GDP ratio from 1972 to 2012 and the projected change of that from 2012 to 2052. The Y-axis shows the amount of Debt as a percentage of GDP, while the X-axis shows the year. According to it, we could see that during the period from 1982 to 1992, the percentage rose up to 50%, which has already been a big proportion. After 1992, although it experienced a slight decrease and an almost steady period, the percentage dramatically increased over 50% after around 2009, probably due to the crisis. Thus, in 2012, the Debt accounted for about 80% of GDP. It is projected that the proportion will keep going up and breach 100% in 2027. That will be a significant point, because after that, the debt will increase much more rapidly, which will bring our economy a serious trouble. The overall upward trend indicates that the economic situation is getting unstable, which requires more attention. The amount of Debt needs to be controlled while the growth rate of GDP needs to be raised up. If the reforms are not conducted soon, the Debt will rise up quickly as the graph shows. Then finally, a bigger crisis will be coming.