Anatomy of a Sovereign Debt Crisis
Post #1024
When nations move away from capitalism by growing government — i.e., having a greater and greater share of all of the services provided by government, instead of by the private sector — the books stop balancing. Because high government provision of services is tantamount to “living beyond your means” — debt accrues until collapse.
Greece experienced a sovereign debt crisis and was bailed out by the European Union. But checking parameters helps us uncover the tipping point where there is nothing that you will be able to do to prevent your nation from collapsing. Total nonfinancial debt passed 200% of GDP and then rose annually by high amounts for multiple years:
NOTE: The contribution of government debt to this total debt had exploded in 2009, when the Greek government ran a deficit so large that it was over 15% of the GDP — putting Greece into a debt crisis by 2010, right after passing a debt of 240% of GDP.
When these 3 things happen in succession … :
debt that has already reached over 200% of GDP
high yearly rate of rise (yearly addition of multiple percentages of GDP)
multiple years of that high rate of rise
… Then your nation collapses.**
**Due to being a reserve currency, the US dollar comes with some privilege which might increase the parameters before reaching the critical threshold. Instead of needing to begin with debt above 200% of GDP in the US, it may be that you need to begin above, say, 230% or 250% of GDP in the US — in order to achieve a collapse.
Recall that to get rising debt, you have got to first “live beyond your means.” And also recall how when government provides most services (instead of the private sector), that is tantamount to “living beyond your means.” When the private sector provides services, it provides them economically, so that costs are more-than-covered (profit).
But government provision of services does not work like that.
Here are markers from 2008, right before crisis hit:
Government Debt
Percent of Dollar-value of Loans in Delinquent/Default Status
Government Bond Yield
Unemployment
Real GDP per capita
Notice how real GDP per capita had not recovered to its 2008 level, even 15 years later. When too many people are too complacent about centralized control over the economy, then you can’t even properly recover from recessions.