Global Financial Data has added over 600 files to its database that provide data on government revenues, government expenditures, the primary balance, interest paid on public debt and the amount of outstanding government debt as a share of GDP. The data cover 56 countries on government revenues, expenditures and interest expense and 200 countries on outstanding government debt.
GFD has combined its extensive database of historical data on government revenues, expenditures and debt with the recent work of Ayhan, Kurlat, Ohnsorge and Sugawara in their paper, “A Cross-Country Database of Fiscal Space” and of Mauro, Romeu, Binder and Zaman in their paper, “A Modern History of Fiscal Prudence and Profligacy” to produce an extensive database that enables users to measure government revenues, expenditures, debt and interest expense relative to GDP beginning in 1688 in the United Kingdom, 1792 in the United States and the 1800s in other major countries. This data has been updated through 2018 where possible.
Ayhan, Kurlat, Ohnsorge and Sugawara have produced a database that measures the Government Debt/GDP Ratio for 200 countries from 1990 until 2018. We have combined their research with GFD’s data on over 30 countries to provide long-term data series that provide insights into how the Government Revenues and Expenditures/GDP and Debt/GDP ratios have changed over time.
In addition to government debt, GFD has added data from the OECD on private debt that begins in 1995 and GFD has summed the private and public debt to provide total debt data for 31 countries that are members of the OECD that provide this data. This data is also expressed as a percentage of GDP.
GFD has created simple mnemonics that enable users to look up data on the different countries that include this data in the GFDatabase. How the codes were created for each of the six variables is provided in Table 1. For example, to obtain the code for Government Revenues as a share of GDP for the United States, simply add GVRP to the ISO Code for the United States, which is USA, to get GVRPUSA. For the Government Gross Debt as a Percentage of GDP for Japan, add GVDP to JPN and get GVDPJPN.
Government Revenues as % of GDP GVRP + ISO GVRPUSA
Government Expenditures as % of GDP GVXP + ISO GVRXUSA
Government Primary Expenditures as % of GDP GVPXP + ISO GVPXPUSA
Interest Paid on Public Debt as % of GDP GVIP + ISO GVIPUSA
Government Primary Balance as % of GDP GVBP + ISO GVBPISO
Government Gross Public Debt as % of GDP GVDP + ISO GVDPUSA
Private Outstanding Debt as a % of GDP PRVD + ISO PRVDUSA
Private and Public Debt as a % of GDP PPUD + ISO PPUDUSA
Table 1. Mnemonics for Government Revenues, Expenditures and Debt in the GFDatabase
Subscribers can do a thorough analysis of government revenues, expenditures and debt using these data series. By calculating each of these variables as a percentage of GDP, the series automatically adjust for inflation and growth in the economy to see how each has changed over time. Not surprisingly, all have grown steadily since the 1800s.
It is important to analyze the Debt/GDP ratio for two reasons. First, excessive debt can constrain growth in the economy. Reinhart and Rogoff have alleged that when the government debt/GDP ratio exceeds 90% that countries will suffer from lower growth than would otherwise have occurred. Second, if you combine high interest rates with a high government debt load, this reduces the level of services which the government is able to provide because government spending is absorbed by interest costs. Interest Paid on Public Debt as a Percentage of GDP enables you to see when this ratio got too high and forced governments to reorganize their finances.
However, it is important to recognize the relationship between capital available for debt and capital available for the stock market. These two factors often display an inverse relationship as is illustrated in Figure 1. When the government is fighting a war, the government directs capital toward the bonds that are issued to pay for the war and away from the stock market. Once the war is over, capital is freed up and can be redirected to new industries and help the stock market to grow. Stock markets have seen some of their most rapid growth and largest bubbles during periods after wars when capital is released from government debt and the capital flows into the stock market.
Figure 1 provides a fascinating chart that compares the ratios of Federal Government Debt to GDP with Capitalization of the US Stock Market relative to GDP. The increases in government debt that occurred during the Civil War, World War I and World War II are clearly visible, as is the increase in debt that has occurred since 1980. You can contrast the changes in government debt with changes in the capitalization of the US stock market. During the 1900s, there was often an inverse correlation between government debt and stock market capitalization with debt increasing at the expense of the stock market during World War I and World War II. As government debt declined after World Wars I and II, stock market capitalization rose. Since 1980, however, both government debt and stock market capitalization have increased their share of GDP.
Figure 1. USA Federal Government Debt and Stock Market Capitalization to GDP, 1792 to 2018
An even more fascinating picture is provided in Figure 2 which looks at the United Kingdom. There was clearly an inverse correlation between government debt and the stock market between 1688 and the 1980s. Both debt and stock market capitalization increased between 1688 and 1720 when the South Sea Bubble occurred. Between 1720 and 1820, central government debt rose while the stock market stagnated. Between 1820 and 1914, government debt plummeted while the stock market increased to over 150% of GDP. During the next 40 years, the stock market shrank in size while government debt grew between 1914 and 1945, then declined over the next 40 years. Since the 1980s, both government debt and stock market capitalization have increased in the United Kingdom as has occurred in the United States and other countries.
Figure 2. United Kingdom Government Debt and Stock Market Capitalization to GDP, 1688 to 2018
The addition of these series on government revenues, expenditures and debt will provide subscribers with a greater ability to understand the interaction between different financial markets. Using the graphs of the United States and United Kingdom, it appears that today money is flowing into both debt and the stock market simultaneously. Similar patterns exist in other countries. How long this will continue before this trend reverses remains to be seen.
25 years ago: January 1995
S&P 500: 470.42 (vs. 3253.05 in 01/2020)
10-year U.S. Government Bond Yield: 7.60% (vs. 1.85% in 01/2020)
Gold: $374.90 (vs. $1571.95 in 01/2020)
Oil: $18.405 (vs. $59.65 in 01/2020)
GBP/USD: 1.5785 (vs. 1.3077 in 01/2020)
US GDP: $7,331 billion (vs. $21,542 billion in 09/2019)
US Population: 266 million (vs. 329 million in 2019)
01/02/1995: Mexico develops a rescue plan to deal with the crisis sparked by last month’s peso devaluation.
01/03/1995: The U.S. and China move close to a trade war as President Clinton threatens 100% tariffs if China refuses to halt software and media piracy.
01/06/1995: A chemical fire in an apartment complex in Manila, Philippines, leads to the discovery of plans for Project Bojinka, a mass-terrorist attack.
01/12/1995: Orange County sues Merrill for $3 billion, charging the firm wantonly and callously sold it high-risk securities.
01/14/1995: Mexico pledges profits from state-owned Pemex’s $7-billion-per-year oil revenues in an effort to secure U.S. congressional approval of $40-billion worth of loan guarantees. Subsequently, President Clinton approved a $20-billion U.S. aid package for Mexico. (DMN)
01/17/1995: The Great Hanshin earthquake: A magnitude 7.3 earthquake occurs near Kobe, Japan, causing extensive property damage and killing 6,434 people.
01/22/1995: Israeli-Palestinian conflict: Beit Lid massacre In central Israel, near Netanya, two suicide bombers from the Gaza Strip blow themselves up at a military transit point killing 19 Israelis.
01/23/1995: Glaxo offers $14.15 billion for Wellcome PLC to become largest prescription drug company in the world.
01/31/1995: President Bill Clinton authorizes a $20 billion loan to Mexico to stabilize its economy.
50 years ago: January 1970
S&P 500: 85.02 (vs. 3253.05 in 01/2020)
10-year U.S. Government Bond Yield: 7.75% (vs. 1.85% in 01/2020)
Gold: $34.99 (vs. $1571.95 in 01/2020)
Oil: $3.21 (vs. $59.65 in 01/2020)
GBP/USD: 2.4015 (vs. 1.3077 in 01/2020)
US GDP: $1,030 billion (vs. $21,542 billion in 09/2019)
US Population: 209 million (vs. 329 million in 2019)
01/02/1970: DJ Rail Average became Transportation Average. Some rails were deleted; certain airline, freight carrier issues added. Pacific Intermountain Express Co., Transway International Corp., Trans World Airlines, Eastern Airlines, Northwest Airlines Inc. Pan American Corp. United Airlines, American Airlines and CNF Transportation Inc. added to the Dow Jones Transportation Average.
01/04/1970: A magnitude 7.7 earthquake strikes Tonghai County, China, killing at least 15,000 people.
01/12/1970: Biafra capitulates, ending the Nigerian Civil War.
01/22/1970: The Boeing 747, the world’s first “jumbo jet”, enters commercial service for launch customer Pan American Airways with its maiden voyage from John F. Kennedy International Airport to London Heathrow Airport.
100 years ago: January 1920
S&P 500: 8.7647 (vs. 3253.05 in 01/2020)
10-year U.S. Government Bond Yield: 4.93% (vs. 1.85% in 01/2020)
Gold: $20.67 (vs. $1571.95 in 01/2020)
Oil: $5.063 (vs. $59.65 in 01/2020)
GBP/USD: 3.4975 (vs. 1.3077 in 01/2020)
US GDP: $84 billion (vs. $21,542 billion in 09/2019)
US Population: 106.46 million (vs. 329 million in 2019)
01/02/1920: The second Palmer Raid takes place with another 6,000 suspected communists and anarchists arrested and held without trial. These raids take place in several U.S. cities.
01/07/1920: Federal Reserve banks start to raise rates. The New York State Assembly refuses to seat five duly elected Socialist assemblymen.
01/08/1920: AFL Iron and Steel Organizing Committee concluded an unsuccessful 3 1/2 month strike in steel industry.
01/10/1920: League of Nations organized. The Treaty of Versailles takes effect, officially ending World War I. The Memel Mark and the Danzig Mark replaced the German Mark at par.
01/15/1920: Francisco Jose Fernandes Costa (Republican Liberal) became Prime Minister of Portugal
01/16/1920: XVII Amendment (Prohibition) effective (repealed Dec. 1933).
01/19/1920: The United States Senate votes against joining the League of Nations.
01/20/1920: The American Civil Liberties Union is founded.
01/23/1920: The Netherlands refuses to surrender the exiled Kaiser Wilhelm II of Germany to the Allies.
01/26/1920: Former Ford Motor Company executive Henry Leland launches the Lincoln Motor Company which he later sold to his former employer.
200 years ago: January 1820
S&P 500/GFD US-100: 1.576 (vs. 3253.05 in 01/2020)
10-year U.S. Government Bond Yield: 4.348% (vs. 1.85% in 01/2020)
Gold: $19.39 (vs. $1461.70 in 01/2020)
GBP/USD: 4.44 (vs. 1.3115 in 01/2020)
US GDP: $727 million (vs. $21,542 billion in 09/2019)
US Population: 9.6 million (vs. 329 million in 2019)
01/28/1820: A Russian expedition led by Fabian Gottlieb von Bellingshausen and Mikhail Petrovich Lazarev discovers the Antarctic continent, approaching the Antarctic coast.
01/29/1820: Death of George III of Great Britain.
01/30/1820: Edward Bransfield sights the Trinity Peninsula and claims the discovery of Antarctica.
© 2020 Global Financial Data. Please feel free to redistribute this Events-in-Time Chronology and credit Global Financial Data as the source.
The Great Bull Market of 2009 to 2019 continues to push the stock market to new highs. The capitalization of the New York Stock Exchange and NASDAQ is now about $37.5 trillion which is equal to 174% of America’s Gross Domestic Product. If the market continues to rise, the American stock market will soon have its largest Market Capitalization/GDP Ratio (MCap/GDP) in history.
The American stock market first exceeded 100% of GDP in September 1929 before it crashed to its 1932 lows at less than 25% of GDP. The stock market’s capitalization didn’t exceed GDP again until 1996. The Dot.com Bubble of the late 1990s pushed the Stock Market Capitalization/GDP Ratio up to 177%, its highest in history. During the financial crisis of 2008, the MCap/GDP ratio fell below 70%, but has bounced back since then. The United States stock market is close to reaching that peak again and the only question is not whether the stock market will exceed the record MCap/GDP ratio of 1999, but when and by how much before the next bear market pummels investors?
In order for the MCap/GDP ratio to be at 200%, the stock market would have to increase to $43.1 trillion, about 15% over the current levels in the stock market. This would mean that the S&P 500 would have to rise to about 3650 for the stock market’s capitalization to be double GDP. Although a market cap that is double GDP may seem excessive, it is not impossible. Switzerland’s MCap/GDP Ratio is currently over 200% and Hong Kong’s MCap/GDP ratio is currently over 1000%, primarily because of Chinese companies that list in Hong Kong.
The stock market has risen 35% from its December 2018 lows and many analysts predict that the stock market will rise to new highs in 2020. If the S&P 500 were to increase to 3675, the stock market’s capitalization will be double GDP. Mark 3650 on your S&P 500 charts and if we achieve that level in the stock market next year, you will know that the stock market will have achieved something it has never done before in American history, reaching a capitalization twice GDP. The Bubble of the 2020s could be here soon.
25 years ago: December 1994
S&P 500: 459.27 (vs. 3132.52 in 12/2019)
10-year U.S. Government Bond Yield: 7.84% (vs. 1.85% in 12/2019)
Gold: $383.25 (vs. $1461.70 in 12/2019)
Oil: $17.765 (vs. $58.99 in 12/2019)
GBP/USD: 1.566 (vs. 1.3115 in 12/2019)
US GDP: $7,331 billion (vs. $21,542 billion in 09/2019)
US Population: 260 million (vs. 329 million in 2019)
12/01/1994: Orange County, Calif., says the value of its investment fund has dropped by an estimated $1.5 billion, as rising interest rates hurt derivatives in its highly leveraged portfolio.
12/05/1994: Fidelity says its flagship Magellan fund isn’t likely to make a year-end distribution as expected, citing a miscalculation.
12/06/1994: Clinton picks Robert Rubin to succeed Lloyd Bentsen as Treasury chief. California’s Orange County files for bankruptcy protection, the largest such municipal filing ever.
12/07/1994: Federal Reserve Chairman Alan Greenspan says there is little evidence of an economic slowdown, an indication that the Fed may not be finished raising short-term interest rates.
12/11/1994: Russian President Boris Yeltsin orders Russian troops into Chechnya.
12/14/1994: Construction begins on the Three Gorges Damon the Yangtze River.
12/15/1994: Clinton proposes tax cuts that he calls a Middle Class Bill of Rights, saying he favors a leaner, not a meaner government.
12/20/1994: Intel offers to replace all of its flawed Pentium chips, bowing to mounting pressure from customers. The Mexican peso begins its collapse by plunging 12.7%. The Mexican government would later abandon all efforts to support its currency. The Mexican devaluation led to a run on banks, which resulted in an 18% decline in deposits between December and March. Eight banks suspended and three banks collapsed. Through end of 1997, 63 of 205 banking institutions were closed or merged.
12/24/1994: Air France Flight 8969 is hijacked on the ground at Houari Boumedienne Airport, Algiers, Algeria. Over the course of 3 days 3 passengers are killed, as are all 4 terrorists.
50 years ago: December 1969
S&P 500: 92.06 (vs. 3132.52 in 12/2019)
10-year U.S. Government Bond Yield: 7.88% (vs. 1.85% in 12/2019)
Gold: $35.20 (vs. $1461.70 in 12/2019)
Oil: $3.21 (vs. $58.99 in 12/2019)
GBP/USD: 2.399 (vs. 1.3115 in 12/2019)
US GDP: $1,030 billion (vs. $21,542 billion in 09/2019)
US Population: 205 million (vs. 329 million in 2019)
12/01/1969: The first draft lottery in the United States is held since World War II.
12/04/1969: Black Panther Party members Fred Hampton and Mark Clark are shot and killed in their sleep during a raid by 14 Chicago police officers.
12/05/1969: Volume discounts initiated, giving large investors a commission price break on most trades exceeding 1,000 shares.
12/08/1969: An Olympic Airways Douglas DC-6 strikes a mountain outside of Keratea, Greece, killing 90 the worst crash of a DC-6.
12/09/1969: U.S. Secretary of State William P. Rogers proposes his plan for a ceasefire in the War of Attrition; Egypt and Jordan accept it over the objections of the PLO, which leads to civil war in Jordan in September 1970.
12/12/1969: Far-right terrorists bomb the Banca Nazionale dell’Agricoltura in Milan (Piazza Fontana bombing), killing 17 people and wounding 88. Four more bombs detonate without victims. Investigations are blurred, and no responsible party has been held accountable.
12/24/1969: Charles Manson is allowed to defend himself at the Tate-LaBianca murder trial.
100 years ago: December 1919
S&P 500: 9.0235 (vs. 3132.52 in 12/2019)
10-year U.S. Government Bond Yield: 4.90% (vs. 1.85% in 12/2019)
Gold: $20.67 (vs. $1461.70 in 12/2019)
Oil: $5.00 (vs. $58.99 in 12/2019)
GBP/USD: 3.75 (vs. 1.3115 in 12/2019)
US GDP: $84 billion (vs. $21,542 billion in 09/2019)
US Population: 104 million (vs. 329 million in 2019)
12/01/1919: Lady Astor becomes the first female Member of Parliament to take her seat in the House of Commons of the United Kingdom. (She had been elected to that position on November 28.)
12/03/1919: After nearly 20 years of planning and construction, including two collapses causing 89 deaths, the Quebec Bridge opens to traffic.
12/12/1919: Manuel Allende Salazar (Conservative) became Prime Minister of Spain
12/13/1919: Australian federal election, 1919: Billy Hughes reelected as Prime Minister.
12/21/1919: American anarchist Emma Goldman is deported to Russia.
12/24/1919: Rockefeller gives $100 million for education and well-being of mankind.
12/26/1919: Babe Ruth of the Boston Red Sox is sold to the New York Yankees by owner Harry Frazee.
12/30/1919: Lincoln’s Inn in London, England, UK admits its first female bar student.
200 years ago: December 1819
S&P 500/GFD US-100: 1.6735 (vs. 3132.52 in 11/2019)
10-year U.S. Government Bond Yield: 4.15% (vs. 1.85% in 11/2019)
Gold: $19.39 (vs. $1461.70 in 11/2019)
GBP/USD: 4.529 (vs. 1.3115 in 11/2019)
US GDP: $727 million (vs. $21,542 billion in 06/2019)
US Population: 9.379 million (vs. 329 million in 2019)
12/01/1819: Bank of Amsterdam closed by government decree; liquidation began in January and lasted a long time.
12/14/1819: Alabama becomes the 22nd U.S. state.
12/17/1819: Simon Bolivar declares the independence of Gran Colombia in Angostura (now Ciudad Bolivar in Venezuela).
© 2019 Global Financial Data. Please feel free to redistribute this Events-in-Time Chronology and credit Global Financial Data as the source.
