The national debt held by any government is typically measured as a percentage of its gross domestic product. This ensures that the debt is measured not in absolute dollar terms, but in comparison to the creditworthiness of the country, and its ability to repay past and future debts.
The gross domestic product of a nation is the sum total of the economy generated by its residents over a given period of time, usually calculated by calendar or fiscal year. It differs from gross national product, in that gross domestic product refers to all residents of a country, while gross national product measures all citizens of a country, regardless of where they reside. The national debt of a country is the total amount of money it has borrowed over time which has not been repaid, and should not be confused with the term &ldquo;deficit,&rdquo; which instead refers to the amount a country needs to borrow in a single year to balance its budget.
National debt in GDP terms is used by other governments and major international lenders to determine the credit rating of nations, much in the same way that a credit score is used for a household applying for credit, which is its own way of acquiring debt. For example, in 2009 the United States had a GDP of $14.2 trillion, and had to issue bonds to cover a deficit for that year equal to 12.9 percent of its GDP, or $1.8 trillion in new debt. However, as the American economy is so strong, and its prior public debt only totaled 52.9 percent of GDP, purchasing American public debt is still considered to be a safe investment, and money is made available to the United States as it is needed.
As of 2009, the American public debt and deficit reached all-time highs by absolute dollar value, but not in relation to its GDP. Higher deficits were run by GDP figures in 1943 during World War II, and a higher debt burden by GDP was carried by the United States at the end of that war.
In 2009, Zimbabwe had the highest debt burden in the world as measured by percentage of GDP, with a public debt of 304.3 percent of its GDP. Japan, a very different economy, holds second place with a public debt of 192.1 percent of GDP. The United States ranks 42nd on this list, although this figure does not include the debt issued in 2009 in response to the economic recession.
It is not entirely correct to think of a country as being in the same situation as a household when its credit is no longer good, and they cannot borrow additional money. This is not true of countries that issue widely traded currencies and securities, including the United States, the European Union and Japan. The issuance of bonds by these governments--which raises the debt level every time they are purchased--also serve as the safest investments within their own economy, and can disrupt investment strategies when they are not made available. As a result, government debt is issued for reasons aside from raising money, and is purchased, in many cases, regardless of the nation&rsquo;s outstanding debt burden.
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