ralfy wrote:It's ironic that I've been sharing the last link and this argument multiple times in this forum, and in several cases used it to counter the fantastic view that a combination of technofixes and "decoupling" will allow for business as usual. Why? Because much of that "wealth" is essentially debt, and has to be backed up with increasing production and consumption of goods, which can't happen in a biosphere with physical limitations.
And yet the debt levels of those countries with growing middle classes, the developing countries, are relatively healthy.
As the sequester demonstrates new lows in America’s fiscal management and the European debt crisis drags on for its third year, it’s worth noting that most of the rest of the world’s financial health is pretty good. Developing countries used to rule the roost when it came to debt crises and defaults. But after a painful period of policy reform supported by considerable debt relief and restructuring, they were in a far stronger position by the end of the last decade. This has allowed them to follow policies that cushioned their citizens from the impact of the global slowdown, rather than having to ratchet up the pain—in contrast to the paths chosen by governments in much of Europe and now, the U.S.
The last decade brought dramatic change. By 2011, suggests the World Bank, the average external debt-to-GDP ratio fell to 42 percent and less than one in three developing countries had a ratio over 50 percent. Compare that to the euro zone, where gross external debt is worth about 125 percent of GDP. Similarly, public debt service in the developing world, measured as a percentage of exports, has fallen from 18 percent in 1990, through 8 percent in 2000, to below 3 percent in 2011.
Lower initial debt levels have also helped developing countries respond more forcefully to the global financial crisis. World Bank economists note that emerging economies didn’t sink as low during the 2008 crisis and bounced back faster than did advanced countries. In the past, they suggest, skittish foreign investors would force developing countries to cut spending and raise interest rates in the midst of a recession, worsening their slumps. This time around—thanks to lower debt, strong reserves, more flexible exchange rate regimes, and increasingly credible central bank leadership—many developing countries have possessed the ability to reduce interest rates and increase spending. And (unlike, say, the U.K.) most were smart enough to use that policy space to avoid shrinking their economies.
How the Developing World Escaped the Debt TrapSome of the growth in global debt is benign and even desirable. To some extent, this reflects healthy financial system deepening, as more households and companies gain access to financial services. Moreover, debt in developing countries remains relatively modest, averaging 121 percent of GDP, compared with 280 percent for advanced economies.
The debt level in developing economies is still very low, at 42 percent of income, compared with an average of 110 percent in advanced economies. Developing nations today have much lower ratios of debt to GDP than advanced economies.
Debt and (not much) deleveraging
The oil barrel is half-full.