The national media and economists say that Japan has the highest
public debt of any developed nation, but the reality is the U.S.
government's debt load is much bigger and much worse.
New research from Markus Jaeger, director of global risk
analysis and Deutsche Bank observes:
"When assessing public-sector debt sustainability, it would be
negligent to disregard implicit government liabilities. Gross and
net debt ratios provide merely a snapshot, failing to capture
medium-and long-term fiscal dynamics. If one sums up government
debt and the implicit debt arising from government pension and
healthcare spending commitments (appropriately discounted), the
U.S. government's debt is almost twice as large as Japan's and
almost three times as large as Germany's."
(See Figure 2 below)
The mainstream press was quick to cover the big story about how
Japan's public debt recently passed 1 quadrillion yen
(NYSEARCA:FXY), which is roughly equivalent to $10 trillion in U.S.
dollars (DX-Y.NYB). But they overlooked the other pertinent facts:
How the U.S. government has been understating its public debt
(NYSEARCA:TLT) for years.
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In a Wall Street Journal piece late last year, Chris Cox and
Bill Archer estimated the federal government's actual liabilities
to be $86.8 trillion or 550% of gross domestic product (
). The analysis included not just the headline debt figure of $16.9
trillion, but other significant costs the government is on the hook
for including Social Security, Medicare, and federal
employees' future retirement benefits. By comparison, Japan's
debt-to-GDP ratio is expected to hit 230% in 2014.
Other estimates put the federal government's total liabilities
at $70 trillion. And the cruel demographics of an aging population
"The fact is that fertility rates in virtually all advanced (and
most top-tier emerging) economies have already fallen to, or below,
replacement levels. Absent immigration, all of them are set to
experience not only population aging and population decline over
the long term, but they will also experience declining labor forces
and rising dependency ratios," adds Jaeger. (See Figure 1
The yield on 10-year U.S. Treasuries (^TNX) has surged 53% since
the start of the year from 1.83% to almost 2.90%. And while
long-term Treasuries holders have experienced double digit losses
near 13%, inverse Treasury funds that gain when bond prices decline
like the ProShares -2x Treasury 20+Yr Bear ETF (
) and the Direxion -3x Treasury 20+Yr Bear ETF (
) have jumped between 24% to 34% year-to-date.
Undoubtedly, the financial stress of an aging population and
exploding public debt will result in a financial reckoning day.
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