5 ms·

This is the wrong number to look at. It's the face value of the debt, which has no practical value; consider debt at 0% interest with a long repayment plan vs p

This is the wrong number to look at. It's the face value of the debt, which has no practical value; consider debt at 0% interest with a long repayment plan vs payday loans due today. International Public Sector Accounting Standards (IPSAS) is the new international standard and makes much more sense; it considers only the market value of your debt, i.e. how much you could find someone to buy it for. Here is a sample of public debt/GDP ratios from 2013. Clearly, proper accounting drastically affects the results: http://english.capital.gr/News.asp?id=2321087 http://english.capital.gr/News.asp?id=2321087

sandstrom 9y ago
I agree there is a difference between long-term and short-term debt. Obviously if you don't have money and your payday loan matures (has to be paid) tomorrow that's different from a loan maturing in 30 years -- when you may or may not have money, and when inflation/deflation may have increased or decreased the absolute value of that debt. But the graph in your link makes it look like Greece is less indebted than the Netherlands. As the article states, that's because the market value of Greek debt is low (lower than nominal value). That's because few want to buy it, since many think Greece won't repay its debt. Yes, if Greece defaults on its loans they will go away. But it will have consequences. For example, lending money in the future may be more difficult. More generally, if a country borrows linearly at some point no one will believe in their ability to repay, so market value will trend towards zero. With your measure the indebtedness of a country will go towards zero (along with the market value of its debt) the more it borrows. It doesn't make sense. The debt is still there and defaulting on it will have consequences.
- akvadrako 9y ago
  > That's because few want to buy it, since many think Greece won't repay its debt. You don't understand - what it means is I would be willing to take on Greece's debt obligations for an immediate financial compensation much less than the face value. It has nothing to do with their creditworthiness. Also, because Greece's debt is actually lower than the Netherlands, or at least it was in 2013, I personally think lending them money would be a great investment and I'm not the only one[1]. It's just not an option for political reasons. [1] http://www.reuters.com/article/eurozone-greece-debt-japonica-idUSL6N0VC3DO20150205 http://www.reuters.com/article/eurozone-greece-debt-japonica...
  - Someone 9y ago
    Yes, Dutch debt is higher (€442 billion versus 321, according to http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=teina225 http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=t...), but the economy of the Netherlands is almost 4 times the size of that of Greece (770 billion USD vs 195, according to https://en.wikipedia.org/wiki/List_of_sovereign_states_in_Europe_by_GDP_(nominal) https://en.wikipedia.org/wiki/List_of_sovereign_states_in_Eu...), and I don't see a huge difference in growth potential between the countries.
    - akvadrako 9y ago
      Obviously, I meant debt/GDP ratio.
      - sandstrom 9y ago
        In 2013 Greece had 177% debt/GDP and the Dutch (Netherlands) had 68%. http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=teina225&plugin=1 http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&l...
        akvadrako 9y ago
        It seems I have to repeat myself, but let me try again. I think you're missing the whole point of IPSAS - "real debt" isn't the absolute number owed at some point in the future. If I owe you $1B, due a zillion years from now, I'm not really in debt $1B. The only reasonable way to measure debt is based on it's market value. That's because someone would be willing to trade that debt with me for owing about $1 a year from now. They are equivalent.
  - winstonewert 9y ago
    Do you have a reference that actually explains the method IPSAS uses to calculate the debt? Everything I'v seen gives a vauge description.
    - 9y ago
Someone 9y ago
"it considers only the market value of your debt, i.e. how much you could find someone to buy it for." Makes some sense, but I don't see how you can find out what Greece's debt is that easily. Its debt may trade at a 18/175 fraction of its face value, but to properly asses it's value you would have to know what buying back _all_ of it would cost. That likely would be quite a bit more because, if they were to buy back half of it at that value, their debt would trade at a much higher fraction of its face value. Also, I think the intent of this is to say that a country's debt cannot be larger than what it can pay back. Sounds reasonable, but we don't have a way to determine that number. Should Greece have to sell the Elgin marbles and the rest of the Parthenon to pay of its debt, for example?
- breatheoften 9y ago
  I'm sure Greece would at least agree that they should have the right to sell the Elgin marbles. The British Museum, on the other hand, probably wouldn't agree.

sandstrom 9y ago

I agree there is a difference between long-term and short-term debt. Obviously if you don't have money and your payday loan matures (has to be paid) tomorrow that's different from a loan maturing in 30 years -- when you may or may not have money, and when inflation/deflation may have increased or decreased the absolute value of that debt. But the graph in your link makes it look like Greece is less indebted than the Netherlands. As the article states, that's because the market value of Greek debt is low (lower than nominal value). That's because few want to buy it, since many think Greece won't repay its debt. Yes, if Greece defaults on its loans they will go away. But it will have consequences. For example, lending money in the future may be more difficult. More generally, if a country borrows linearly at some point no one will believe in their ability to repay, so market value will trend towards zero. With your measure the indebtedness of a country will go towards zero (along with the market value of its debt) the more it borrows. It doesn't make sense. The debt is still there and defaulting on it will have consequences.

akvadrako 9y ago
> That's because few want to buy it, since many think Greece won't repay its debt. You don't understand - what it means is I would be willing to take on Greece's debt obligations for an immediate financial compensation much less than the face value. It has nothing to do with their creditworthiness. Also, because Greece's debt is actually lower than the Netherlands, or at least it was in 2013, I personally think lending them money would be a great investment and I'm not the only one[1]. It's just not an option for political reasons. [1] http://www.reuters.com/article/eurozone-greece-debt-japonica-idUSL6N0VC3DO20150205 http://www.reuters.com/article/eurozone-greece-debt-japonica...
- Someone 9y ago
  Yes, Dutch debt is higher (€442 billion versus 321, according to http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=table&plugin=1&pcode=teina225 http://ec.europa.eu/eurostat/tgm/refreshTableAction.do?tab=t...), but the economy of the Netherlands is almost 4 times the size of that of Greece (770 billion USD vs 195, according to https://en.wikipedia.org/wiki/List_of_sovereign_states_in_Europe_by_GDP_(nominal) https://en.wikipedia.org/wiki/List_of_sovereign_states_in_Eu...), and I don't see a huge difference in growth potential between the countries.
  - akvadrako 9y ago
    Obviously, I meant debt/GDP ratio.
    - sandstrom 9y ago
      In 2013 Greece had 177% debt/GDP and the Dutch (Netherlands) had 68%. http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&language=en&pcode=teina225&plugin=1 http://ec.europa.eu/eurostat/tgm/table.do?tab=table&init=1&l...
      - akvadrako 9y ago
        It seems I have to repeat myself, but let me try again. I think you're missing the whole point of IPSAS - "real debt" isn't the absolute number owed at some point in the future. If I owe you $1B, due a zillion years from now, I'm not really in debt $1B. The only reasonable way to measure debt is based on it's market value. That's because someone would be willing to trade that debt with me for owing about $1 a year from now. They are equivalent.
- winstonewert 9y ago
  Do you have a reference that actually explains the method IPSAS uses to calculate the debt? Everything I'v seen gives a vauge description.
  - 9y ago

Someone 9y ago

"it considers only the market value of your debt, i.e. how much you could find someone to buy it for." Makes some sense, but I don't see how you can find out what Greece's debt is that easily. Its debt may trade at a 18/175 fraction of its face value, but to properly asses it's value you would have to know what buying back _all_ of it would cost. That likely would be quite a bit more because, if they were to buy back half of it at that value, their debt would trade at a much higher fraction of its face value. Also, I think the intent of this is to say that a country's debt cannot be larger than what it can pay back. Sounds reasonable, but we don't have a way to determine that number. Should Greece have to sell the Elgin marbles and the rest of the Parthenon to pay of its debt, for example?

breatheoften 9y ago
I'm sure Greece would at least agree that they should have the right to sell the Elgin marbles. The British Museum, on the other hand, probably wouldn't agree.