|Below are top 30 countries with the largest foreign exchange reserves, excluding gold, according to Wikipedia. Why is this list important right now? While the US government is in a shut-down mode and default is looming, it is a good idea to examine the real financial situation with various countries. Just like in your household and mine, we determine the solvency of any economy by savings to debt ratio. Which countries are solvent and which are not? What is really going on with the US government debt?
As of 10/10/2013, USA has $16.749 trillion in public debt and only $136 billion in currency reserves. If you or I had this kind of debt to savings ratio, we would have to declare bankruptcy in a hurry. Moreover, no one in their right mind would have lent us this much money in the first place, seeing as we had so little in savings. How does USA get away with it? And how did it manage to keep its AAA rating till relatively recently? Apart from the global financial game being seriously rigged in favor of the United States, the US has been enjoying an unfair advantage no one else has: the US dollar, or petrodollar as it’s frequently referred to, is the world reserve currency. The US can print (or rather add digits electronically) as much as it wants, thus devaluing yours and mine hard-earned savings and destroying the long-term value of the currency, while exporting inflation and financial problems to other countries. However, the US won’t be able to do this with impunity forever. The situation is changing slowly but surely. I’ll talk about that in future posts. More coming!
The numbers below don’t take into account the so-called creditor nation vs. debtor nation status, in other words, the level of debt of any given country. For example, China has by far the largest foreign exchange reserves – almost $3.5 trillion. Over 1 trillion of that is in US dollar. Chinese debt has been rising fast due to the rapid pace of economic growth (which has now slowed down significantly), but compared to China’s reserves, it’s still relatively small. This makes China the larger creditor nation in the world. Russia has a negligible debt, however, its reserves are at $470 billion, which makes Russia a pure creditor nation. Same is true for Switzerland, whose debt is small compared to its reserves. At the same time, USA currency reserves are only $136 billion, while America’s public debt as of 10/10/2013 is $16.749 trillion and rising fast (see US debt clock), which makes it the largest debtor nation not only in the world, but also in human history! Note: if we include US private and corporate debt, the numbers by some estimates will be closer to $100 trillion.
Stay tuned: The largest Gold Reserves by country coming next!