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Debt
The health of the economies could be measured in terms of debt to GDP. Debt should not be viewed as a notional of face value but rather should be viewed in the following ways

  a) Debt should be considered as a function of future earning capabilities (i.e. How much revenue could be generated using the debt)
  b) Service ability (i.e. how much of GDP is used to pay for the debt annually) e.g. debt = 1 mil, annual repayment 50K, revenue generated from the debt = 2 mil, therefore the service ability rate is 2.5% per annum
  * In Japan, debt to GDP 400% but their service ability is at 2% per annum which makes them the lowest
  * In Australia the total home loan debt is approximately 6 trillion AUD which is equivalent to 200% of GDP
  * Australia’s service ability is less than 3% p.a. so if Australia makes 100 billion dollars, 97% is at their disposal
  c)   Bad debts = default/a sunk cost to the economy e.g. there are three nations that suffer from severe bad debt (in order of severity)
  1.   China (20% of their GDP is bad debt)
  2. European unions
  3. Brazil

How to service the debt?
Bank of Japan set low cash rate   low interest rate   low DSR (debt servicing ratio)

Issues of having such low rates are
  1. Deflations
  2. Low rates = no savings and hence no real capital investments
  3. Government securities no longer a risk free asset
  d)   nj
  e)