The Wealthiest Nation on Earth?


Last night the lead story on the 11 o’clock news was the impending debt crisis in the United States. To be fair this has been big news for several weeks now with everybody fighting over how much debt its okay for the government to carry and whether or not they will need to raise taxes or cut spending to get there (or do both).  As the talking head wrapped up the story he said something that I’ve heard before but which struck me as a bit odd this time given the circumstances.  He said that the United States is still the wealthiest nation on earth.

Really?  How can a nation that is more than $13 trillion in debt still be considered the wealthiest nation on earth?  I guess it depends on how you measure wealth.

True if all you calculate is income then the United States does bring in the most money of any other economy.  It’s called Gross Domestic Product or GDP and in the United States that number stands at $14 trillion per year, almost 3 times that of its closest rival, Japan at just under $5 trillion.

But income doesn’t tell the whole story.

My investment advisor once told me that when measuring wealth you have to consider the amount of debt you carry.  By that measurement that United States is not the wealthiest Nation on Earth, they are in fact the poorest.  Their debt is more than the entire European Union combined, and nearly triple that of such international debt pariahs as Greece and Portugal.

Of course when you have a population of over 300 million people you can afford to have a bit more debt right? You have more citizens contributing to the income of the nation and helping to make those dept payments so looking at the gross debt doesn’t quite tell the whole story, maybe a better measure of debt is per capita.  By that measure each US citizen is responsible for approximately $45,000 of debt.  That’s less than tiny Luxemburg (over $3 million) and Ireland ($500,000) but still more than the overall average for the European Union ($27,000), Russia, ($3,700) and poverty-stricken Ethiopia ($51!).

Now nobody is going to suggest that Ethiopia is richer than the United States so clearly dept per capita isn’t a good measure of wealth either. Then I remembered something else my investment advisor told me.  He told me that the only number that really matters is your debt to income ratio.  The United States debt is equal to 95% of its income. That’s better than England (400%) and Germany (142%) but again still not as good as the European Union as a whole (85%) my home of Canada (64%) or India (15%).

So taking all of these things into account who is the wealthiest nation on earth?

The Principality of Lichtenstein has $0.00 debt but with a GDP of just $4 billion and a population of just 34,000 is it fair to consider them the wealthiest?  I don’t think so.

In order to make a far comparison we need to establish a benchmark of some sort so for that sake of argument let’s go with a minimum GDP of $1 trillion.  Of the 14 countries with at least a $1 trillion GDP, none of them are completely without debt but
the country with the best debt to income ratio and therefore in my humble opinion the wealthiest nation on earth is;

Drum Roll…………

China!

The Chinese GDP is $4.4 trillion making it 3rd behind the United States and Japan but debt is just $407 billion which puts the  debt to income ratio at just 7%.  With a huge population, low debt and an annual growth rate of nearly 30%, China will likely surpass both Japan and the United states on the gross income scale within 5 years.  Until then the United States will still have a legitimate claim on the title of wealthiest nation by GDP but with such a high debt no one will be able to make that claim and keep a straight face for much longer.

(All numbers are based on 2009 data from the International Monetary Fund)

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