The Seven Coun­tries Most Vul­ner­a­ble To A Debt Cri­sis

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For decades, some of the most impor­tant data about mar­ket economies was sim­ply unavail­able: the level of pri­vate debt. You could get gov­ern­ment debt data eas­ily, but (with the out­stand­ing excep­tion of the USA—and also Aus­tralia) it was hard to come by.

That has been reme­died by the Bank of Inter­na­tional Set­tle­ments, which now pub­lishes a quar­terly series on debt—government & private—for over 40 coun­tries. This data lets me iden­tify the seven coun­tries that, on my analy­sis, are most likely to suf­fer a debt cri­sis in the next 1–3 years. They are, in order of likely sever­ity: China, Aus­tralia, Swe­den, Hong Kong (though it might deserve first billing), Korea, Canada, and Nor­way.

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About Steve Keen

I am Professor of Economics and Head of Economics, History and Politics at Kingston University London, and a long time critic of conventional economic thought. As well as attacking mainstream thought in Debunking Economics, I am also developing an alternative dynamic approach to economic modelling. The key issue I am tackling here is the prospect for a debt-deflation on the back of the enormous private debts accumulated globally, and our very low rate of inflation.
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  • ken

    In addi­tion to the debt plus GDP start­ing to decrease, the US stock­mar­ket that is also decreas­ing, which is a sign of con­tract­ing debt. Their hous­ing bub­ble is till going but at a decreased rate so by the end of the year it will prob­a­bly be in trou­ble.

    What amazes me is the lack of com­par­isons with 2005. Amer­i­cans are extolling the virtues of their recov­ery, as unem­ploy­ment has declined, it is the Great Mod­er­a­tion all over again.

  • Dar­ren Gold­bach

    Very inter­est­ing analy­sis Steve. The 3 giant coun­tries are listed above China, Canada and Aus­tralia. Please post more why those coun­tries are vul­ner­a­ble to a debt cri­sis? It’s more inter­est­ing to know what are the top 5 coun­tries that has a huge poten­tial this year 2016. Thank you. |

  • Stanof

    Hi Steve. I fol­low your work/articles for the last 2 years and mostly agree with your con­clu­sions, how­ever, I have some ques­tions for you regard­ing this arti­cle.

    I live in Van­cou­ver, Canada and see lots of “crazi­ness” going on. For exam­ple, for last cou­ple of years each month a new record is set for how much the real estate prices rise year-to-year and this past March it was about 28% for detached houses (which keep ris­ing the most of all prop­erty types). Years before it was 22% , 17%, 12%… so clearly the rate of ris­ing prices is on an expo­nen­tial path. While this is crazy in itself the big­ger ques­tion is how much longer it can keep going?

    Based on what you are say­ing it looks like not much longer, unless of course gov­ern­ment will stim­u­late, which already con­firmed that it will start­ing 2016, mostly through big con­struc­tion projects but per­haps even lower inter­est rates.

    How­ever, here are my three argu­ments why this can keep going even with­out gov­ern­ment and you can’t see them in your mod­els:

    1) With new­com­ers, espe­cially Syr­ian refugees (per­haps up to 200-300K), there will be a new pool of bor­row­ers. Great major­ity of them won’t be able to bor­row right a way but as they get jobs they will.

    2) There is tremen­dous amounts of money com­ing here from China and I think it will keep accel­er­at­ing for more than next 3 years. It’s like stim­u­lus com­ing from out­side. In Van­cou­ver or Toronto, there are 500-800K houses being bought in full in cash on some­what reg­u­lar bases (not large scale though) by the Chi­nese money. In short, lots of money is com­ing.

    3) Canada’s GDP in last 2 years could be skewed because of very low oil prices. About 300K of peo­ple in that sec­tor in Alberta lost jobs over the last year — pretty much all of them high-pay­ing rel­a­tive to the rest of the coun­try. (How­ever, you could argue that if China goes into cri­sis Canada will go as well because of lower oil/resources exports.)

    Any­ways, while I agree that in the long run you are cor­rect I am just point­ing a cou­ple of fac­tors that I believe your mod­els can’t see.

    Thank you for all your work and edu­ca­tion!


  • Stanof

    BTW, if you want to dive deeper into Van­cou­ver crazy house price increases check here and at the bot­tom of the page keep chang­ing the fil­ters from drop­down boxes. These are the offi­cial num­bers by Real Estate Board of Van­cou­ver. You might need to sit down though 🙂

  • StuWills

    I think we are all con­cerned about our per­sonal debt and that of the coun­tries we live in too.
    As a New Zealand mort­gage bro­ker we are some­times joke about finance and money but the real­ity is most Kiwis are con­cerned about our own finances as well as the coun­try as a whole espe­cially given our small size and the relianace on some of the larger coun­tries who appear to be strug­gling a bit.

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  • James Wal­lace

    Hi Steve,

    Would you say New Zealand is in the same/similar posi­tion to Aus­tralia and there­fore your com­ments on Aus­tralia would also apply to New Zealand? Or do you see some mate­r­ial dif­fer­ences between the two coun­tries?

    Look­ing for­ward to your new book.