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 countrys GDP. This gives some interesting comparative insights into the level of debt exposure that each country has.
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 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% 1497 3577 41.8% 2929 81.9% 51.1% 38 1.1% 3,401.0 71.7% 191 5.3% 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% 817 840 97.2% 559 66.5% 146.2% 11.6 1.4% 612.5 59.4% 34 4.1% 459 2199 20.9% 2660 121.0% 17.2% 34.8 1.6% 2,451.8 71.4% 138 6.3% 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% 285 484 58.9% 268 55.4% 106.4% 6.3 1.3% 0 0 0.0% 212 513 41.3% 486 94.7% 43.6% 5.3 1.0% 227.5 36.8% 13 2.5% 176 218 81.0% 250 115.0% 70.5% 1.3 0.6% 6 11.8% 0 0.2% 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% 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% 88 514 17.1% 290 56.4% 30.3% 8.3 1.6% 102.9 4.5% 6 1.1% 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% Hence Mortgage Debt is still only 29.3% of the value of the property PropertyInvesting.net Sept 2012
Country
USA
Germany
France
Netherlands
Italy
Sweden
Norway
Belgium
Ireland
Portugal
Austria
Poland
Turkey
Note: UK property value total is ~ £3950 Billion, or $6400 Billion
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 dont 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, dont 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%.