HowWealthWorks.com

[Suresh]

Check out the linked graph at the bottom of the post. It shows public and private sector debt as percentage of gdp for various countries. Japan and the U.K. are the clear over-achievers in the graph, both having total debt around 480% of GDP. However, the graph does not include Greece. According to Seeking Alpha's "Debt and Debtors: Why Greece Matters for Governments and Investors, Part II" post, Greece's "total debt is estimated as high as 875% of GDP, compared to rich world normal of 500-600% (this includes all on and off balance sheet debt and an estimate of social spending commitments, according to McKinsey). Greece's outstanding government debt alone is between 120-130% of GDP." The graph also fails to include, with respect to the U.S., the country's unfunded liabilities. Including the $106.4 trillion in unfunded liabilities permits the U.S. to leapfrog Japan and U.K. and be in the same category as Greece.

A Greek debt default by itself isn't going to harm anyone other than Greek debt holders. However, a Greek debt default could have a ripple effect as bond investor value sovereign debt with similar risks less, thereby raising yields of such sovereign debt. That is, investors might short Japan's sovereign debt, U.K. sovereign debt, and/or Spain's sovereign debt. At present debt levels, we could see exploding debt dynamics play out in several parts of the world at the same time.
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The Prudent Investor: McKinsey Says Deleveraging Will Exert Drag on GDP Growth

International consulter Mc Kinsey is another mainstream thinking business that takes a seat in the orchestra of doom, fearing years of gloom:
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New research from the McKinsey Global Institute (MGI), though, suggests that the deleveraging process may just be getting under way and is likely to exert a significant drag on GDP growth.1 Our study of debt and leverage2 in ten mature and four emerging economies3 indicates that some sectors of the economies of five countries—Canada, South Korea, Spain, the United Kingdom, and the United States—will very probably experience deleveraging.

What’s more, our analysis of deleveraging episodes since 1930 shows that virtually every major financial crisis after World War II was followed by a prolonged period in which the ratio of total debt to GDP declined significantly. The one exception was Japan, whose bursting asset bubbles in the early 1990s touched off a financial crisis followed by many years...

Domestic and private sector debt by country, as a percentage of GDP
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BP 2010Q1
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Suresh

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