You are here

America's wealth hinges on its ability to borrow big: Bloomberg


THE US economy is consistently ranked among the world's strongest. But cut off its addiction to debt and exhaust its gold and currency reserves, and a very different picture would emerge.

The country's health as measured by gross domestic product per capita would plunge into negative territory without its dependence on borrowed money, according to data compiled by Bloomberg.

In fact, the US would fall almost to the bottom of a ranking of 114 economies by GDP per capita. Only Italy, Greece and Japan would fare worse. That's a seismic shift from America's comfortable No 5 spot on a list based on conventional measures.

Market voices on:

To get this somewhat dystopian measure, Bloomberg took each economy's 2020 GDP as projected by the International Monetary Fund as a starting point. We then adjusted the number by removing the ability to borrow, while adding reserves to create an alternative wealth measure.

US per capita income of US$66,900 would be slashed to a negative US$4,857 using this measure. That's a total loss of almost US$72,000 for every man, woman and child.

The US isn't alone, though; it's pretty grim across the board. Among the 114 economies included in the final list, 102 would experience reduced per capita wealth if they suddenly lost the ability to borrow.

Japan ranked dead last, with more than US$93,000 of income erased per person. Its per capita income of US$43,701 in 2020 would flip to a negative US$50,000 and its rank on the list would plunge 96 spots, from 18th to last.

Nor is the UK immune in the alternate, borrowing-free universe. With debt and reserves at 83 per cent and 5 per cent of GDP, respectively, its economy would see per capita wealth drop 10 spots to No 29 in this measure - from US$43,522 to US$9,779.

China would see its relative ranking gain a few spots, since its holdings of gold and foreign currency are the world's largest at US$3.36 trillion or roughly 22 per cent of GDP. That dwarfs second-place Japan, with US$2.1 trillion.

Luckily for Americans, a debt-free economy is unlikely to happen anytime soon. Even with growing trade wars against China and others, and the Trump administration's projected US$1 trillion budget deficit in fiscal 2020, the US debt market allows for ample liquidity and the US dollar is considered the world's reserve currency.

The US will need to continue to borrow. The IMF projects America's government debt to average 109 per cent of GDP over the next five years. Reserves, having averaged US$425 billion between 2014 and 2018, would account for less than 2 per cent of the projected US$22.2 trillion GDP for 2020. BLOOMBERG