As can be seen in the accompanying table, in most of the major nations, debt‐to‐GDP ratios are increasing, because the deficits as a percentage of gross domestic product (GDP) are greater than economic growth — meaning these countries are getting deeper in the hole each year. The optimists think that the United States might experience a 3 percent growth rate this year and only a 4 percent deficit as a share of GDP. If this optimistic scenario turns out to be true, the U.S. debt as a share of GDP will still increase. Many forecasters believe the United States will grow less than 2 percent at most because of all the new tax increases and regulations, and the deficit will again be more than 7 percent of GDP. As a result, at year’s end, the U.S. will be much deeper in the debt hole. Federal Reserve’s purchases of U.S. government debt, coupled with paying banks interest on their reserves with the Fed, merely temporarily mask the underlying problem.
Japan, France, Italy and Spain are all likely to be back in recession in 2013 or continue to be, with their debts getting larger as a percentage of GDP. It is widely believed that a number of countries, notably France, are understating their real debt‐to‐GDP ratios. Germany is being dragged down by its European neighbors so it will not show much if any growth. It also has a high debt‐to‐GDP ratio (83 percent), so there is little margin for error. Greece continues to be a basket case with a debt‐to‐GDP ratio of an estimated 171 percent and growth at a negative 7 percent.