I’ve heard about debt problems in Greece and Ireland. Their debt levels being (as % of GDP):
Greece-167% external, 113% public
Ireland-1,004% external, 65% public
But Luxembourg has 3,854% external debt, about $4 million per capita. Is this not a problem? Their public debt is low, at 15% of GDP, but I don’t see how external debt that high can be OK. The number cited for the U.S., $13.8 trillion, is the measure of external debt. So what numbers should we be looking at to see what the true “weight” of debt is?
I’m not a monetary expect, but from my own empirical analysis, a debt crisis only really occurs when people think there’s going to be a problem (i.e. chance you will default on your loans). As from your point, I can see the wide variations in public / private debts, so I’m not sure how it works internationally, but I still maintain that it doesn’t become a crisis until someone / enough people says it is.
A debt crisis is when a country starts finding it difficult to “service” its debt, meaning it must spend a proportion of its GDP and/or tax revenue that is felt to be “unbearable”. For example Japan has an astronomical debt but since most it is held internally by what is taken to be a “captive market” (meaning it will accept extremely low interest rates and will keep purchasing bonds), “servicing” it costs relatively little in GDP and/or taxation revenue terms.
Greece had to be bailed out because they had a very large batch of bonds expiring in May. Those bonds had to either be repaid in full (when Hell freezes over) or replaced with new bonds (standard practice), paying a considerably higher interest to reflect the increased risk of default despite extremely positive rating from US agencies. In short investors wanted, nay, demanded higher interests because they felt ratings didn’t reflect the true economical situation. Greece couldn’t afford either course so they sent an SOS. Since French banks were saddled with ouzo bonds, the ECB stepped in.
To see the true weight of a national debt we’d have to see how much of taxation revenue/GDP goes into debt servicing. Good luck finding that. It is generally assumed that anything over 4% of revenues going into debt servicing is bad news. If you find out anything let me know.
A debt crisis occurs when the central government can not pay its immediate debts and its central bank refuses to let it default because most of the loans are to the member banks of the central bank. This is different from individuals who can always use the default option.