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All the Countries in the World are in Debt

March 2nd, 2007 · No Comments

As I was driving home yesterday, I heard something on NPR about how America’s national debt is blossoming — it was just a sentence or a phrase in a newscast, but it got me thinking.

Today, I looked up the statistics for the External Debt of Nations. My hypothesis, made while driving the car, was that no nation would be free of debt. It was just a knee-jerk, instantaneous hypothesis. By this I mean that not much thought went into it.

I was wrong. There are nations free of debt. Brunei, Norway, Leichtenstein, Palau, Jersey in the Channel Islands and Cyprus are the nation-states that are free of debt. Thats it. Period. All other countries have huge amounts of external debt, and no one seems to be in a hurry to pay off their debts. I expect that the effective interest rates on these debts vary, with poorer nations paying higher interest rates, and the rich paying lower effective interest rates. So if one were to calculate and tabulate effective or net interest rates for countries’ external debt, that would reflect the “richness” of a nation.

Two questions buzz in my mind:

  1. If all countries are in debt, how can there be any truly “rich” countries? The existence of debt implies a negative negative net worth, doesn’t it?
  2. Why don’t groups of countries work together to minimize their debts? For example, if Germany owes the UK $10 billion, and UK owes France $12 billion, why don’t they work together to take UK out of the equation by saying Germany effectively owes France $22 billion?

Enough to get you thinking, I hope.