Another look at a National Debt

An external debt to gross domestic product (GDP) ratio offers an interesting perspective on the current debt crisis. One way to look at a nation's debt situation is by comparing external - total debt of a country that is owed to creditors outside of the country, to that country's GDP (the value of all goods and services produced) a comparison called the debt‐to‐GDP ratio. By comparing what a country owes to what it produces, we can assess the likelihood that a country can pay back its debt.
Debt held by a nation’s own citizens is less harmful because the interest paid is returned to the domestic economy. External is another matter. Non‐residents receive the interest on external debt, making the country poorer with each interest payment. European countries have more debt per capita than income per capita, and an external debt greater than 100% of GDP. Because of the level of interconnection between European banks, there is a risk that one country failing could result in others failing too. This is the one of the major factors contributing to the current European debt crisis.
Some countries chose to repay debt through austerity measures. Drastic austerity measures in however, could push a country into recession, increasing both the debt‐to‐GDP ratio and their borrowing costs.
It is not a good cycle.
The United States has created as much national debt for our country in the last 7 years as we created in our country's history up to 7 years ago. As of 4/30/04, the total debt of the US government was $7.13 trillion. As of 4/30/11, the total debt of the US government was $14.29 trillion (source: Treasury Department). 5/16/11 BTN issue, # 3