Owing to strong GDP growth, the debt to GDP ratio decreased from 100.2 per cent to 95.1 per cent.

France s debt GDP ratio is already around 90 even if its 2013 budget deficit does not exceed 3.5 of GDP, its debt GDP ratio will have climbed to 93 by the end of the year. The government s GDP share, at 56 , is the highest in the eurozone and second highest among all developed countries.

The opposite side of the high absorption GDP ratio is an equally high trade deficit.

In response to the global financial crisis in 2008, China introduced a RMB4 trillion ( 634 billion) stimulus package. While the increase in investment reduced the saving GDP ratio, the resulting increase in imports lowered the trade surplus GDP ratio.

Even with the latest deal, Greece s debt ratio remains at 120 of last year s GDP. With a projected drop in GDP of 7 this year and a sustained deficit, the debt ratio would exceed 130 before stabilizing at 120 in 2020.

In Spain, despite tax hikes worth more than 4 of GDP since 2010, the tax to GDP ratio was only 38 in 2014, compared to 41 in 2007. In Greece, tax increases amounted to 13 of GDP during the same period, but the tax ratio increased by only six percentage points.

This sharp devaluation increased further the cost of debt servicing and the debt to GDP ratio.

As a result of greatly expanded GDP in 2004, the public debt to GDP ratio declined slightly, to 180 per cent, but is still very high.

Third, though China s public debt GDP ratio is officially still under 20 , since the onset of the global financial crisis in 2008, its fiscal position has deteriorated. If the government s contingent liabilities are included, China s debt GDP ratio may be closer to 50 .

Following a decline from 163 per cent of GDP in 1999 to 143 per cent in 2001, the absorption GDP ratio climbed to 164 per cent in 2004.

Starting from 1999, the first year of recession, fiscal deficits rose substantially, alongside the public debt to GDP ratio.

Although the government s stimulus policies have increased the national debt, the debt GDP ratio remains relatively low, at roughly 37 . Public debt in Japan, by contrast, exceeds 220 of GDP.

To anyone not blinded by folly, the explanation for this mass downgrade is obvious. If you deliberately aim to shrink your GDP, your debt to GDP ratio is bound to grow.

Indeed, according to the OECD, by the end of this year, America s national debt GDP ratio will climb to 108.6 . Public debt in the eurozone stands at 99.1 of GDP, led by France, where the ratio is expected to reach 105.5 , and the United Kingdom, where it will reach 104.2 .

A public debt crisis in Japan (as the combination of recession, deflation, and high deficits drove up the debt GDP ratio).

In 1996, when Japan s public debt GDP ratio reached 80 , many Japanese economists and officials worried about a looming crisis. Almost two decades later, the ratio has surpassed 200 and still no crisis has erupted.

In 2012, as the debt to GDP ratio skyrocketed, Greece s private creditors were given a significant 34 haircut. At the same time, however, new loans worth 63 of GDP were added to Greece s national debt.

If you deliberately aim to shrink your GDP, your debt to GDP ratio is bound to grow. The only way to cut your debt (other than by default) is to get your economy to grow.

For Greece, with an overall deficit of 4.1 of GDP and a debt GDP ratio of 170 , the debt ratio would fall if the combination of inflation and real (inflation adjusted) GDP growth exceeded 2.4 . Stated differently, now that Greece has achieved a zero primary budget deficit, its debt burden will decline if its nominal growth rate exceeds the average interest that it pays on its government debt.

Before the crisis, credit expansion in China kept pace with GDP growth. Since the end of 2008, however, credit amounting to 35 of GDP has been issued annually, causing the credit to GDP ratio to soar from less than 150 before the crisis to 250 today.

The world's average ratio of trade to gross domestic product (GDP) increased from about 40 per cent in 1990 to 60 per cent in 2003.

Nor is it alarming. The US economy grew rapidly for several years after WWII with a higher debt GDP ratio, and today s ratio is lower than in all other major industrial countries (and roughly half that of Greece, analogies to which are absurd and misleading).

It narrows government budget deficits by increasing tax revenues and limiting welfare spending. By raising the denominator of the debt GDP ratio, it enhances confidence in debt sustainability.

According to a study by the Chinese Academy of Social Sciences, the debt GDP ratio for China s nonfinancial corporations was 113 by the end of 2012. Standard amp

It has no economic justification. In the long run, additional targeted spending cuts will be necessary as part of a balanced package to stabilize the debt GDP ratio.

This ramification is highlighted by the consistently high domestic absorption (private and public consumption and investment expenditures to GDP ratio) and the allocation switch from investment to consumption.

In addition, given that local government debt comprises 27 of China s 2010 GDP, while central government debt and policy loans stand at 20 and 6 of GDP, respectively, the total public debt to GDP ratio is approximately 53 lower than Germany s. So, while China should not be complacent about local government debt, panic is unwarranted.

But governments and investors know this, and the result has been much higher debt to GDP ratios than would have been possible under the gold standard. The eurozone as a whole has a debt to GDP ratio of 90 , which is high by any standard.

With China s trade to GDP ratio and exports to GDP ratio already exceeding 60 and 30 , respectively, the economy cannot continue to depend on external demand to sustain growth. Unfortunately, with a large export sector that employs scores of millions of workers, this dependence has become structural, which implies that to reduce China s trade dependency and trade surplus is much more than a matter of adjusting macroeconomic policy.

Instead of dropping to 110 as planned, the public debt to GDP ratio has increased to 170 . Annual per capita real income contracted 4.8 , on average, over the last six years.

In fact, China s high debt GDP ratio is, to a large extent, a result of its simultaneously high saving and investment rates. And, while the inability to repay loans can contribute to a high debt burden, the nonperforming loan (NPL) ratio for China s major banks stands at less than 1 .

Experience suggests that China s external position is highly sensitive to global conditions, with the surplus GDP ratio rising during boom times for the world economy and falling during slumps. Europe s malaise has hit China s exports badly, and undoubtedly is the most important factor underlying the current decline in the ratio.

To be sure, China s debt GDP ratio, reaching 250 this month, remains significantly lower than that of most developed economies. The problem is that China s stock of private credit would normally be associated with a per capita GDP of around 25,000 almost four times the country s current level.

It is likely to rise to more than 60 of GDP by the end of 2010, with the debt to GDP ratio continuing to increase. The resulting increase in real long term interest rates will reduce all forms of interest sensitive spending, adding further to the economy s weakness.

European leaders seem to be moving in this direction. The required cut is large eliminating half of Greece s public debt obligation would leave it at nearly 80 of GDP, a ratio higher than Spain s.

More striking is the CBO s projection that the deficit will continue to decline rapidly, reaching just 2.1 of GDP in 2015, before rising gradually to just 3.5 of GDP in 2023, the end of the CBO s official forecast period. That path of deficits implies that the government debt GDP ratio will remain at about the current level of 75 for the next ten years.

Economic development is a convoluted process, full of challenges and risks, successes and failures, external shocks and internal volatility. And adverse effects such as a rising debt to GDP ratio and excess capacity are inevitable.

There is nothing progressive about large budget deficits and a rising debt to GDP ratio. After all, large deficits have no reliable effect on reducing unemployment, and deficit reduction can be consistent with falling unemployment.

As a result of this chronically rapid growth in broad money, China s M2 GDP ratio has surpassed 180 , the highest in the world. Though the full implications of this uniquely high ratio for macroeconomic stability need further investigation, it certainly implies financial fragility and a weakening of the PBOC s ability to control overall liquidity in the economy.

Consider Italy, which has the highest ratio of private wealth to public debt of any G 7 country, and is some 30 to 40 higher than in Germany. Likewise, Italy and France share a private wealth GDP ratio of five to one, while Spain s at least before the crisis hit the country in full was six to one.

Third, while ECB policies keep borrowing costs lower, private and public debt in the periphery countries, as a share of GDP, is high and still rising, because the denominator of the debt ratio nominal GDP is barely increasing. Thus, debt sustainability will remain an issue for these economies over the medium term.

Although Greece s public debt amounts to about 175 of GDP, low interest rates which are fixed for a large proportion of it and long maturities mean that it may be more manageable than it seems. Greece s ratio of public debt service to GDP is similar to that of Portugal, or even Italy.

Some countries face the growing risk of near perpetual belt tightening, which would further dampen growth and thus keep debt ratios high. After all, if a country s debt GDP ratio is to decline without austerity, the interest rate that it pays on its debt must be lower than its GDP growth rate.

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