rott
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Post by rott on Mar 6, 2019 9:59:25 GMT 7
What specifically do debt to GDP, and household debt to GDP say about a country?
Obviously a bit simplistic to say if a country has a high debt it is because everybody is confident enough to lend to them, and low domestic debt is because there is nobody fit to lend to. Context may not quite be everything, but......
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chiangmai
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Post by chiangmai on Mar 6, 2019 10:07:42 GMT 7
High debt to GDP suggests the economy is out of balance and is running a deficit that must be financed, Thailand is running a current account surplus. Deficit becomes debt at the end of the budget year, it must be financed and interest paid on it, that sort of debt is not great to have although some debt has become the norm if it is used to finance infrastructure build-out for example. A finger in the air - Western debt of 90%+ of GDP = bad, Thai debt of 40% of GDP is OK.
Consumer debt: some levels of it are a sign of a prospering economy, people have jobs, they feel secure enough to borrow, the banks are lending, those things are good.
High level of consumer debt is less good, it means people are trying to finance their everyday lifestyle using credit, it may also mean the government is pushing for a consumer-led recovery by encouraging banks to lend more. A finger in the air - Consumer debt of 100%+ of GDP = bad, 50% of GDP = good.
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Post by Fletchsmile on Mar 6, 2019 16:38:38 GMT 7
It's just one of many measures of looking at a country. Looking at one measure of how much of the economy is financed by debt.
Being just one metric it really needs considering in the context of others. It can also throw up as many if not more questions than it answers, eg
What would an optimal level be for an/the economy? and in the light of that what scope is there to increase it or does it need reducing?
If it's low then people could borrow more to fuel/grow the economy. If too high this may restrict ability to borrow more in the future. eg if household debt is already high then households capacity for taking on new debt may be largely taken up, meaning the economy can't rely on further borrowing to grow, and gowth may slow down.
Thailand's household debt had been steadily increasing and been a reason for growth. It's now sort of regarded as near to the high end of comforetable levels and could do with bringing down a bit. Hence growth may slow
Is too much financed by debt, therefore if something goes wrong, problems get made worse because of debt/ leverage.
A measure of financial risk in the economy.
etc etc
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chiangmai
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Post by chiangmai on Mar 6, 2019 19:47:44 GMT 7
Debt of say 1 billion today will seem much much lower in ten years time after it has been inflated away, punters today may be aghast at the idea of a 1 billion debt but the powers that be know that inflation will erode that value to an acceptable level. Which is why governments convert debt into bonds and then sell them, it means the amount they have to pay back on the redemption date, twenty-five years later or more, will be a relatively insignificant amount - in that context debt can be a smart thing to own.
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