U.S. Swimming in Debt According to OECD

While the downturn of the Chinese and Greek economies has taken center stage, some international economic watchdog groups fear the United States’ economy may also be in trouble.  Though the U.S. economy has shown signs of growth after a slight setback in the early part of 2015, the Organization for Economic Cooperation and Development (OECD) has released its latest figures for national indebtedness, and the numbers do not appear promising for the world’s largest economy.

While the downturn of the Chinese and Greek economies has taken center stage, some international economic watchdog groups fear the United States’ economy may also be in trouble.  Though the U.S. economy has shown signs of growth after a slight setback in the early part of 2015, the Organization for Economic Cooperation and Development (OECD) has released its latest figures for national indebtedness, and the numbers do not appear promising for the world’s largest economy.

The U.S. currently ranks number six on the list of most indebted advanced economies in the world, according to a recent OECD report. That represents an enormous leap up the ranks of national debt. In 2007, the ratio of debt-to-Gross Domestic Product (GDP) for the U.S. was less than 76 percent. However, by 2014 that number rose to 122.6 percent. These figures do not take into account unfunded obligations like Social Security and Medicare, which means the situation may, in fact, be far worse.

Indeed, when looking at which nations beat the U.S. in the national debt report, the comparisons become more shocking. Greece, of course, tops the list at a debt-to-GDP ratio of 181 percent, with Italy in second at 156 percent, Portugal at third with 149 percent, Belgium at 129 percent, and Ireland and 127 percent. Japan probably would have come in first, except figures were not available at the time the OECD prepared its report. As of 2012, Japan’s debt-to-GDP ratio was 235 percent.

Despite the bleak debt report, the OECD’s overall outlook for the U.S. economy has improved since last year. Nevertheless, the OECD does point out that this high level of debt acts as an unnatural drag on the nation’s economy. “[R]ecovery has hit a soft patch,” according to the report, and despite improvements to the labor market “wage acceleration to date has been modest and not broadly based.” This relates to the observation that while employment has declined, wages have not improved as much as they normally do after a recovery of this sort, a phenomenon that has baffled many economists.

To reach its conclusions, the OECD looks at a number of indicators, including public finance, public and private employment rates, human resource management, budgeting practices and procedures, public sector integrity, regulatory governance, and government services to citizens.

The 122.6 percent of GDP figure translates to a current U.S. national debt of approximately $18.3 trillion. However, the OECD report predicts that debt will decline slightly and stabilize around 110 percent of GDP over the next two years. This prediction is based on “cyclical developments” the OECD predicts to occur before debt growth accelerates once more in 2018 due to anticipated health care spending and social security.

At the other end of the spectrum, Estonia had the lowest debt-to-GDP ratio of all OECD member nations at a mere 14 percent.