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Gold as a Backdrop Against a Debt Situation

A topic every financier loves to talk about is debt.  The topic elicits such passion from all sides of the issue.  Overall, one side of the debate see the continued overexpansion of debt as something that could spell doom for the global economy – eventually.  On the other end of the discussion are observers who view debt as a necessary evil for current growth.  They know debt is a problem but see growth now as more important that growth at some unknown period in the future.

In all the discussions, one thing becomes clear among all debating camps – debt will eventually be a problem. 

The Debt Picture, Looking at the Highest Debt to GDP Levels in Recent History

Here is a look at the debt picture.  Before viewing the figure below, which country would you guess has had the highest debt per GDP (Gross Domestic Product) in its history

Would you put a European country as the biggest problem child in history?  Taking shots at European countries for their debt is a beloved pastime of financiers. 

Perhaps an African country shows up on top?  Default in African countries is a bigger problem that it has been in the western world.  Perhaps some countries took on way more debt than they could swallow?

Could the United States be on top?  The Americans certainly love debt.

What about an Asian country?  China is booming – perhaps it has had the highest historical debt to GDP measure of any country?  Perhaps Japan is the biggest offender.  Policymakers in Japan have struggled to generate growth, and perhaps part of that is their enormous debt loads. 

The chart on the previous page goes from light yellow to dark brown.  Countries with a dark brown coloring are the countries have had the highest historical debt to GDP levels.  The countries with the lowest “highest” historical debt to GDP are lightly colored yellow. 

Curiously, the most highly indebted country is Liberia.  The Liberia debt burden was once 721% of GDP. 

Which country is next in line?  Iraq.  The war-torn country once had a debt to GDP burden of 343% of GDP. 

Rounding out the countries with the highest debt to GDP history are Sao Tome (309% of GDP), Mauritania (280% of GDP), and Zambia (278% of GDP). 

The Least Historical Indebted Figures

What about the lowest indebted countries?  Which countries have the lowest “highest” debt to GDP in its history?

The five lowest indebted countries are Brunei (3.2% of GDP), Estonia (10.7% of GDP), Kosovo (16.6% of GDP), Cuba (21.1% of GDP), and Libya (21.2% of GDP).  A complete listing of the highest historical debt to GDP follows at the end of this article.

Back to the Real Questeion, Why Does Debt Matter for Gold?

The real question here is – why does debt matter for gold?    

The answer is easy.  Large debt levels could eventually lead to high inflation.  Unwise debt levels could also lead to either default, restructuring, or a recession.  In all of these cases, the hedge against a debt problem is gold.  Gold protects against inflation.  Gold acts as a hedge against an economy turning south.  Overall, gold is a asset that covers some of the downside risk for other asset classes.

Country

Highest

Liberia

721

Iraq

343

Sao Tome and Principe

309

Mauritania

280

Zambia

278

Republic of the Congo

270

Equatorial Guinea

261

Japan

253

Sierra Leone

247

Jordan

220

Myanmar

216

Jamaica

212

Guinea Bissau

210

Congo

204

Kuwait

203

Serbia

201

Syria

190

Lebanon

183

Greece

181

Burundi

173

Nicaragua

169

Argentina

167

Moldova

159

Zimbabwe

148

Sudan

139

Mozambique

138

Guyana

136

Belgium

133

Italy

132

Portugal

131

Cameroon

131

Cape Verde

130

Togo

124

Kyrgyzstan

122

Ireland

120

Malawi

120

Rwanda

120

Bhutan

119

United States

119

Morocco

118

Gambia

117

Panama

116

Algeria

116

Suriname

115

Guinea

113

Singapore

112

Ghana

112

Madagascar

112

Tajikistan

111

Sri Lanka

109

Cyprus

108

Angola

104

Saudi Arabia

104

Egypt

102

Canada

101

Spain

100

Central African Republic

97.4

France

97

Yemen

96.1

Uruguay

96.1

Israel

96

Mongolia

95.73

Iceland

94.7

Russia

92.1

Euro Area

91.9

Djibouti

90.7

Bahrain

90.6

Chad

90.2

Gabon

90.1

Lesotho

88.66

Montenegro

88.3

Pakistan

87.9

Indonesia

87.43

Belize

87.1

Seychelles

87

European Union

86.5

Ecuador

85.5

United Kingdom

85.3

Austria

84.6

Albania

84.6

Hungary

84.3

India

84.2

Ivory Coast

84.2

Croatia

84

Slovenia

82.6

Laos

81.7

Ukraine

81

Germany

81

Malaysia

80.74

Bolivia

78.5

Kenya

78.3

Comoros

78.1

Bulgaria

77.6

Turkey

76.1

Nigeria

75

Philippines

74.9

Qatar

74.4

Brazil

74.04

Bahamas

73.7

Netherlands

73.5

Senegal

72.6

Sweden

72.4

Venezuela

72.3

Malta

72

Uganda

71.5

Tunisia

70.1

Costa Rica

69.66

Nepal

69.5

Honduras

68.06

Paraguay

67

Niger

66.5

El Salvador

65.52

Eritrea

65.2

Mauritius

65

Finland

63.5

Haiti

62

Vietnam

61.5

Uzbekistan

59.38

Trinidad and Tobago

59.2

Benin

58.2

Denmark

58.1

Thailand

57.8

Macedonia

57.2

Fiji

56.2

Bosnia and Herzegovina

56.04

Poland

55.7

New Zealand

54.8

Slovakia

54.7

Norway

53.7

Maldives

53.7

South Africa

53.1

Azerbaijan

51.1

Colombia

50.6

Guatemala

50.45

Tanzania

50.2

Bangladesh

50

Dominican Republic

49.12

Switzerland

48.9

Mexico

48.2

China

47.6

Latvia

47.4

Peru

47.1

Papua New Guinea

46.9

Armenia

46.19

Czech Republic

44.9

Georgia

43.9

Burkina Faso

43.4

Cambodia

43.1

Lithuania

42.6

Iran

42.3

Australia

41.9

Ethiopia

41.8

Namibia

41.5

Oman

39.9

Turkmenistan

39.2

Romania

39.1

Hong Kong

38.4

South Korea

38.3

Chile

37.4

Taiwan

34

Belarus

31.9

Botswana

27.5

Palestine

26.36

Swaziland

26.16

Cayman Islands

24.5

United Arab Emirates

24.1

Luxembourg

23.7

Afghanistan

23

Kazakhstan

21.9

Libya

21.2

Cuba

21.1

Kosovo

16.63

Estonia

10.7

Brunei

3.2