Do Like We Do?

After studying the graphic in yesterday's WSJ report($) on the need to somehow create giant debt-fueled consumption-based economies in all of Asia in hopes of saving the world, an even closer look at the data was required.

Here's the graphic:

Click to enlarge

Nothing above should be surprising with the possible exception of countries like Brazil, Mexico, and Poland where the population apparently prefers mattresses and cookie jars to a savings account at the local bank branch.

The point of the graphic was to demonstrate how much money Asian workers keep as bank deposits, the thinking being that some of these funds should be used to service new debt that would fund consumption, which would then balance the U.S. trade deficit, and a global economic catastrophe could be averted.

The report tells how exporting nations in Asia are "racing to build an American-style consumer economy", a phrase that on the face of it may sound well and good, but glosses over the new debt and attendant cultural changes required to make that happen.

With a little government encouragement, banks in China, India and other Asian countries are increasingly eager to put more spending power in consumers' hands. The idea is that providing consumer credit through mortgages, credit cards and personal loans will encourage consumers to increase their spending, helping to diversify Asian economies.

The transition is likely to be a slow one. Even in countries such as India, where individuals already play a big economic role, consumer credit takes a back seat to cash transactions.

Washington likes the consumer-based strategy because making Asia less dependent on exports might help reduce the huge U.S. trade deficit, and could create new demand for U.S. goods.

But the transition doesn't come without risks. Even the U.S., with its more-sophisticated financial system, isn't immune to consumer-credit woes.

The consumer-credit woe referenced above is likely the credit expansion "end-game" currently playing out in U.S. mortgage markets. At some point, new debt no longer has the desired effect. We Americans really ought to tell the Asians that after about 25 years of reckless credit expansion, they'll eventually run into problems.

A Closer Look at Mortgage Debt

What really stood out in the graphic above was one particular set of data in the second row showing outstanding mortgage balances as a percent of GDP, now shown to the right.

At first glance the data makes good sense since Hong Kong, Taiwan, and Singapore are more western than other larger areas like India and mainland China.

One of the prerequisites for being like us Americans is a healthy load of debt to generate decades-long prosperity.

But is that chart misleading at all?

Are residents of Hong Kong and Taiwan up to their eyeballs like Americans in mortgage debt as would seem to be the case?

Referencing GDP and population data from ever-handy Wikipedia puts the above data into a little better context - the comparatively benign U.S. mortgage debt above transforms into a clearer picture of the origins of recent U.S. economic growth.


For every man, woman, and child in the U.S. there is $21,000 in mortgage debt, far more than even the most western parts of Asia and a thousand times as much as India.

A small price to pay, especially at such low interest rates and easy terms.

When you think about it, this actually goes nicely with about an equal amount of national debt per capita. Factoring in other personal debt and government's unfunded liabilities gets you near a six-figure total pretty quickly.

Is it really a good idea to encourage Asia to do like we do?