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446: Debt timebomb - most exposed developed nations


09-22-2012

PropertyInvesting.net team

Mortgage and Government Debt: We thought it would be helpful to provide the actual numbers behind the gigantic government debts in a simple tabulation. This also includes the actual private residential mortgage debt and this number as a percentage of the country’s GDP. This gives some interesting comparative insights into the level of debt exposure that each country has.

 

Country

Mortgage debt $ Billions

GDP $ Billions

Mortgage Debt as % of GDP 2011

Gov't Debt $ Billion

Gov't Debt as % of GDP 2012

Mortage Debt as % of Govt Debt

Military Spending $ Billion

Military Spending as % of GDP

Gold Reserves Tons

% of Gold Reserves to Total Reserves

Value of Gold $1750/ounce ($ Billion)

Value of Gold as % of GDP

USA

10891

15094

72.2%

15849

105.0%

68.7%

687

4.6%

8,133.5

74.7%

458

3.0%

UK

1874

2418

77.5%

2096

86.7%

89.4%

56

2.3%

310.3

16.8%

17

0.7%

Germany

1497

3577

41.8%

2929

81.9%

51.1%

38

1.1%

3,401.0

71.7%

191

5.3%

France

1035

2776

37.3%

2427

87.4%

42.6%

57.4

2.1%

2,435.4

66.1%

137

4.9%

Spain

884

1494

59.2%

1047

70.1%

84.4%

15.8

1.1%

281.6

38.6%

16

1.1%

Netherlands

817

840

97.2%

559

66.5%

146.2%

11.6

1.4%

612.5

59.4%

34

4.1%

Italy

459

2199

20.9%

2660

121.0%

17.2%

34.8

1.6%

2,451.8

71.4%

138

6.3%

Sweden

368

538

68.5%

175

32.5%

210.6%

5.2

1.0%

125.7

11.1%

7

1.3%

Denmark

308

333

92.5%

151

45.3%

204.2%

4.6

1.4%

66.5

3.3%

4

1.1%

Norway

285

484

58.9%

268

55.4%

106.4%

6.3

1.3%

0

 

0

0.0%

Belgium

212

513

41.3%

486

94.7%

43.6%

5.3

1.0%

227.5

36.8%

13

2.5%

Ireland

176

218

81.0%

250

115.0%

70.5%

1.3

0.6%

6

11.8%

0

0.2%

Portugal

149

239

62.3%

265

111.0%

56.1%

5.2

2.2%

421.6

81.1%

24

9.9%

Greece

105

303

34.5%

573

189.0%

18.3%

9.4

3.1%

111.7

78.7%

6

2.1%

Austria

104

419

24.8%

309

73.8%

33.6%

3.4

0.8%

280

56.2%

16

3.8%

Finland

99

267

37.2%

134

50.3%

73.9%

3.7

1.4%

49.1

20.6%

3

1.0%

Poland

88

514

17.1%

290

56.4%

30.3%

8.3

1.6%

102.9

4.5%

6

1.1%

Turkey

40

778

5.1%

296

38.0%

13.4%

15.6

2.0%

116.1

6.0%

7

0.8%

Russia

39

1850

2.1%

222

12.0%

17.5%

61.2

3.3%

851.5

8.6%

48

2.6%

Note: UK property value total is ~  £3950 Billion, or $6400 Billion

Hence Mortgage Debt is still only 29.3% of the value of the property

PropertyInvesting.net Sept 2012

USA: A few general observations. Firstly the direct US debt as most will be aware it colossal standing at $16 Trillion, though against GDP it is a slightly less frightening 105%. But this hides the unfunded liabilities that the US has such as Frannie Mae, Freddie Mac (drives this to $22 Trillion) then Medicare, Medicaid and Pensions plus military and education – all driving this to $65 Trillion or about 400% of GDP. The USA is in essence bankrupt, or it would be if rates rose to 5% because it would need over 100% of its tax receipts to pay interest rate payments on its colossal debts. Stay very wary of the US debt bomb and the US bond market – which is likely to pop in the next 1-2 years, and as early as Jan 2013.

UK:  Regarding the UK, its mortgage debt and government debt ratios to GDP are both bad and balanced – a serious situation. Any country that gets to government debt of 100% of GDP normally tips into crisis after markets run against them. So its very important to watch the UK debt and make sure it stays below 100% - otherwise its likely to tip towards default (like Greece).

UK Gearing: The mortgage debt to GDP is high at 90%, but the actual mortgage debt to total residential property value is only 29%. This suggests an overall severe negative equity situation is not close – but this masks huge property prices paid in cash by foreigners in London and SE England that distort this figure. The debt to property prices in the north of England are likely to be rather higher than 29%. But as property prices drift higher following inflation and debts are eroded in real terms – this number might fall over time – as long as property prices don’t crash of course. We believe if property prices crash with a centre-right government, they will prop them up by printing more money – the government will in our view not want to see property prices crashing. Instead they would rather create inflation and inflate away the government and mortgage debt over 5-10 years. This is normally what happens when private and public sectors get over-leveraged and both do not wish to default. They use inflation to take from savers and investors to help people with existing bad debt – not very disciplined – but we say this not because it is right – its just what is or will be happening moving forwards in our view. What we are saying is, don’t expect a house price crash, instead expect stagflation. Property prices not quite keeping pace with inflation, but rising all the same – and meanwhile the debt is deflated away.

Greece has fairly low mortgage debt not being that high, the government debt is gigantic. A real basket case. Bankrupt beyond any doubt – a country that needs hand-outs and propping up from more wealthy neighbours to keep the damaged Euro from imploding.

Italy has always had a gigantic debt – has struggled with this for many years – this will continue unless there is no indirect bail-out in the form of money printing (buying bad debt) from the Central European Bank. Mortgage debt is low, government debt is high.

Ireland has very high mortgage debt and government debt – and will take years to re-balance – Ireland had a boom and went bust. After joining the Euro, rates were slashed as Germany tried to prevent deflation in the 1990s – this caused a gigantic housing boom – at one point Dublin property was almost as expensive as West London property. Now things are re-adjusting to the new reality.

Cold NW European Nations With Dense Populations: Another observation is that countries that have severe pressures on building land (highly populated, small dense urban areas) tend to have high property prices as a % of GDP. Examples are Denmark, Netherlands, Belgium, UK, Ireland. This makes sense in that building land prices are very high and its not easy or low cost to build - also the population like nice properties in the northern countries with good insulation - more expensive to build. So a citizen will need higher borrowing to buy or build a home. Hence the total value of the property stock make exceed the GDP many fold. For example, in the UK, the total value of the property is $6400 Billion - with GDP of $2400 Billion - hence the residential property prices are 266% of GDP. Some of this might also be explained by high capital inflows by the super-rich into these safe have countries where property legal rights are strong with high political and security stability. So land pressures and safe haven status could explain.

Russia is very interesting. The mortgage debt to GDP is very low, and government borrowing is also very low. Russia defaulted in late 1990s when oil prices dropped to $9/bbl. Now, with oil prices at $110/bbl - the country's GDP has rapidly expanded but government debt is well controlled and mortgage are not easy to come by for most people. On the face of it, Russia with a huge land mass and oil/gas/mineral reserves looks like a winner - but corruption is an issue and it's certainly not easy for the average person to do business in Russia. The odds are stacked up against foreign investors.  

Overall, in the listing of countries above, total GDP is $34.9 Trillion, total government debt is $30.9 Trillion and total residential mortgage debt is $19.4 Trillion. This means residential mortgage debt to GDP is 55%. Hence the UK's mortgage rate to GDP is rather high at 77.5%.

 

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