Governments

Governments appear to be complicated simply because of the size of the accounts compared to individuals and business entities.  However, they would still have to follow the rules of money found in the seven elements of financial intelligence, although they may use different words such as political will for motivation and financial discipline, or savings and consumption instead of saving and spending.  Just like business corporations, governments would have to watch out for financial turmoil.  They would also have to invest their money wisely and do marketing to attract foreign investments into the country.

The other complication is due to the politics involved where politicians would have to be popular, especially in democratic countries.  Increasing taxes or reducing the citizens' benefits may be necessary but they are unpopular decisions which may cause politicians to lose their job.  More often than not, countries resort to increasing their debt through budget deficits in order to satisfy their voters.  In simple terms it means bad money habits involving spending money and getting into more debt.

Although the layman believes that running a government is complicated, it is not difficult to gauge the health of a country's economy.  Just like the blood pressure measures the general health of the human being, the debt-to-GDP ratio measures the health of a nation.

We all know that for the human, a healthy BP is 120/80.  What about the debt-to-GDP ratio for a country?  The World Bank and the IMF (International Monetary Fund), the two biggest financial agencies in the world, advise that a country should not have a debt-to-GDP ratio of more than 60%. And how do the countries fare with this benchmark?  All the richest and most successful countries in the world have debt-to-GDP ratios way below this level.

Now let us look at the top ten economies in the world today in 2022 and their debt-to-GDP ratios.

US - 123%

China - 62%

Japan - 290%

Germany - 77%

UK - 106%

India - 76%

France - 132%

Italy - 185%

Brazil - 100%

Canada - 105%

Source:  https://www.usdebtclock.org/world-debt-clock.html

As we can see from the above, all the top 10 countries and economies of the world have debt levels exceeding the recommended benchmark for good health.  Some economists argue that just looking at the debt-to-GDP ratio alone is simplistic; a country's economy is rather complicated with many other factors to take into consideration.

However, this rough guide can prove useful in giving us a good idea of a country's financial health.  Just like a high blood pressure can damage our other organs, high national debt levels may give rise to chronic events like market crashes involving property, stocks, commodities, currencies and other financial derivatives.  It may cause unemployment and inflation which give rise to social ills  like hardcore poverty, union strikes, unrest and high crime rate.  In extreme cases, it may cause wars among countries.