Debt is a fundamental tool that allows economies to expand and grow. It provides the financing needed to make critical investments in infrastructure, business expansion, and innovation. However, if not managed correctly, it can lead to dangerous levels of debt that can harm economies. This is the dilemma that many economies face, particularly in the developing world. In this article, we will explore the impact of a higher debt-to-GDP ratio and how this behaviour drives the consumerism world we live in today.

"There are two ways to conquer and enslave a country. One is by the sword. The other is by debt." - John Adams

Impact of Higher Debt-to-GDP Ratio

When a country's debt-to-GDP ratio exceeds 100%, it can lead to several challenges that can have long-term economic consequences. One of the biggest challenges is higher borrowing costs. Investors view countries with high debt levels as riskier and demand higher interest rates to compensate for the added risk. This can increase borrowing costs, making it more expensive for the country to service existing debt and to borrow new funds.

Another consequence of a high debt-to-GDP ratio is reduced investor confidence. Countries with high debt levels may struggle to attract foreign investment and may be viewed as unstable by investors. This can make it difficult for the country to access credit in the future, which can stifle economic growth.

High debt levels can also lead to reduced economic growth. Governments may need to cut back on spending or increase taxes to manage their debt levels, which can slow down economic growth and hinder job creation. Additionally, high debt levels can leave countries more vulnerable to economic shocks such as a recession or natural disaster. Since they may have limited financial means, they have less flexibility to respond to these events.

List of countries with over 100% Debt-to-GDP Ratio

Below is a list of selected countries with debt-to-GDP ratios over 100% as of 2023 (source: Worldpopulationreview):

Venezuela: 350% 

Japan: 266%

Sudan: 259%

Greece: 206%

Lebanon: 172%

Cabo Verde: 157%

Italy: 156%

Libya: 155%

Portugal: 134%

Singapore: 131%

Bahrain: 128%

United States: 128%

These countries face significant challenges due to their high levels of debt and must take measures to manage it effectively.

Driving Consumerism

High debt levels are not only a problem for governments but also for individuals. The world we live in today is driven by consumerism, and individuals are encouraged to spend more to drive economic growth. However, this behaviour can lead to dangerous levels of personal debt, which can harm the individual's financial health.

Many individuals take on debt to finance their daily needs, such as housing, education, and healthcare. However, consumer debt, such as credit card debt, can quickly spiral out of control, creating high-interest payments and an inability to make ends meet. This can lead to a cycle of debt that is difficult to escape, creating long-term financial consequences.

Furthermore, consumerism also drives the production and consumption of goods, which has environmental consequences. The more people consume, the more natural resources are needed to produce these goods. This creates an unsustainable cycle.

We don't own money printers and can't issue bonds 

Individuals don't have mechanisms to escape debt, we don't own money printers and we can’t issue bonds to receive more money from institutions. Individuals should aim to reduce their bad debt and only use good debt going forward. Unlike countries, bad debt has no benefit for the individual in the street and only provides pain and hurt. Download and use our calculator to organise your debt and repay them in a manner that suits you. You can watch our Youtube video that explains the tool Debt Repayment Organiser

At the end of the day, you are responsible for you and your family's financial position. Empower yourself to make better decisions.  

Summary

In conclusion, debt is a necessary tool for economic growth, but it must be managed correctly. High debt levels can lead to significant challenges for governments and individuals. Unlike governments, individuals can't escape debt as easily and bad debt does not provide any benefit to the individual. It's best to leave the bad debt for governments and ensure your path to financial independence.

If you want to find out more about becoming financially independent, please see our free course. If you want a blueprint toward financial independence, you can enrol in our Stages to financial independence course.

Onward to Financial Independence 

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