For anyone who has followed the recent economic developments closely enough and has at least some theoretical background in finance, the huge debt hole of the so-called advanced economies hardly comes as a surprise. Right now, the “debt bomb” has the same as exploded in the eurozone and threatens to “blow up” the entire single currency area.
The problem derives from the fact that over the past 30 years we have created immense amounts of debt backed by illusory assets. It has been aggravated by things like inequalities in the income, imbalances between countries, assets accumulating into a few hands.
Smart men have observed that debt is a two-edged sword. (Citing BIS Working Paper no. 352) Used wisely and in moderation, it is said to clearly improve welfare. But, when it is used imprudently and in excess, the result can be disaster.
I have applied their conclusions in order to estimate the size of the debt hole for the eurozone as a whole, and for each single country in the euro area. To add some context, I have also included certain other EU countries (United Kingdom, Sweden, Denmark, Latvia and Lithuania) as well as approximate calculations for the US and Japan.
The report is now available on the Financial Research eXchange: http://www.frxmarket.com/p/europes_debt_hole_numerical_assessment/159
It consists of the following sections:
* Notes on data and methodology
* Results and interpretations
* Conclusions, (policy) implications and suggestions for investors
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