The Economist has a brief article on the debt loads of the G20 developed nations versus the emerging market countries. Because the developed countries are very dependent on their financial services sectors for economic growth, they have seen tax revenues plummet (just as the master of disaster, Harvard professor and former IMF chief economist Kenneth Rogoff, indicated had happened in all of the previous crises). At the same time, developed countries tend to have much more extensive social welfare safety nets—an expense that accelerates as the economy gets worse. The net result is that debt as a percentage of GDP has exploded as The Economist’s graphic below indicates.
The political implications of the developed world being dependent on the emerging market countries to finance them will be interesting to see unfold. The G20 nations are going to have much less leverage in global negotiations. Gone is the ability to boss everyone else around—we need their money as much as they need our expertise and technical assistance. Multi-lateralism has arrived whether we like it or not.
