Comparing Empires: A Tale of Four Countries

NEW YORK ( TheStreet) -- Working overseas and doing research on countries, I have always noticed striking differences and what explains them. Here, I look at four countries: China, Greece, Japan, and the U.S.

I chose these four for specific reasons: The U.S. is the aging empire. In the '70s, it was thought Japan would be next, but China is now is expected to succeed the U.S. I selected Greece because it has been in the news recently, along with other reasons.

Let's start by looking at a few common yardsticks for economic well-being.


Consider first government debt. In its reports on Greece, the IMF has said repeatedly that a debt-to-GDP ratio of 160% cannot be sustained. And indeed, the primary purpose of the "haircut" forced on its private sector creditors was to lower Greece's debt ratio. Look at Table 1. It provides the debt-to-GDP ratios for our four countries. Japan -- is that a typo? No. Japan has a debt ratio far higher than Greece. China's debt is low - No. 132 out of 164 countries. More on this later.

Table 1. - Government Debt-to-GDP Ratios, 2011

Source: IMF

Government Deficits

There is much concern about the size of government deficits and the tradeoffs between stimulus and austerity. How do our countries stack up on this measure?

Table 2. - Government Deficits-to-GDP Ratios, 2011

Source: IMF

Once again, Japan leads, with the U.S. just behind. Greece doesn't look so bad. But what goes with Japan? Nobody is talking about a Japanese bankruptcy.

Current Account and Balance Sheet

If a country's exports exceed its imports, maybe it can build up enough reserves so as to "neutralize" large government debts/deficits.

So look at Table 3, below. It gives both current account data (a slightly more complete picture of a countries' international transactions than just the trade balance) and balance sheets (assets and liabilities in billions of U.S. dollars). Things are now a bit clearer.

Table 3. - International Transactions and Balance Sheets, 2011

Source: IMF

These data go at least part of the way to explain why Greece is having serious "survival" problems while Japan is not. Greece is running a large international transactions deficit while Japan is running a surplus. Greece does not have its own currency, so deficits reduce its money supply. Also, Greece's liabilities exceed its assets. Japan is quite different. It has a trade surplus and balance sheet with a $3 trillion balance.

But let's look a bit more closely at Japan. Who buys all its debt? Unlike the U.S. and European investors who put approximately 40% of their assets in the stock market, Japanese investors put only 10% in equities. Why? Because the Japanese stock market has not performed well.

For the 20 years ending at the beginning of 2008, the Nikkei 225 has fallen 28%. Over the same period, the S&P 500 increased by 476%. So the Japanese put their money in banks. And Japanese banks invest 75% of their money in government debt. And so the debt gets financed, even though the debt is enormous.

Meanwhile the U.S., the aging empire, has high government deficits and debt plus a current account deficit and a $3 trillion balance sheet deficit. But apparently the world likes to hold U.S. debt, both dollars and government securities. Will this continue? Probably for a while.


Greece is struggling to survive in the eurozone. It won't. The growing debt in Japan is a bomb waiting to go off. The U.S. reflects all the signs of a country in decline.

China continues to grow more rapidly than any other nation. But in the not-too-distant future, its trade surplus will become a deficit because of the demands of a growing middle class. That will have important repercussions.
Elliott Morss is an economic consultant and an individual investor in developing countries. He has taught at the University of Michigan, Harvard University, Boston University, among other schools. Morss worked at the International Monetary Fund and helped establish Development Alternatives Inc. He has co-written six books and published more than four dozen articles in professional journals.