June 18th, 2010
03:48 AM GMT
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If you’re looking for a scary summer read, here’s a suggestion: “The World Economic and Financial Surveys Fiscal Monitor” by the International Monetary Fund.

Sure, it’s not Stephen King, but in reading through the IMF’s look at growing public debt and extrapolate the ramifications, you’ll find a chilling tale.

To set the scene: Right now, in the G7 nations, the government debt-to-GDP ratio (essentially how much they owe versus how much they make) is rising “to levels exceeding those prevailing in the aftermath of the Second World War.”

The report suggests that the wave of austerity sweeping the eurozone due to public debt is a mere skirmish compared to the three economies where public debt is truly the largest offenders: The U.S., Japan and the UK.

By 2015, the report estimates the collective debt level of the U.S., Japan and most of Western Europe will hit 110 percent of GDP, compared to 73 percent in 2007.

“Events in Europe are providing the clearest demonstration of the increased attention being paid by markets to differences in underlying fiscal conditions across countries,” the report says. Translation: Just as investors turned sour on Greek bonds, they may turn on bonds from the U.S., Japan and other large economies that are sinking further in the red.

A dystopia as a result of public debt has already turned into popular fiction in Japan. The comic book series “Salary Man, Kintaro,” paints a world where Japan’s debt bomb explodes, swallowing the nation in red in the wake of a worldwide sell-off of Japan’s national bonds, CNN’s Kyung Lah reports.

Japan’s top leaders fear that fiction could turn to fact. New Prime Minister Naota Kan now is talking tough about reducing its public debt – which is the among developed nations – to avoid a similar crisis that Greece faced, saying Japan risks financial collapse if public debt mounts as confidence in the bond market drops.

The IMF report shows the amount of fiscal tightening needed to bring countries’ government debts below 60 percent of gross domestic product by 2030. The report is thick with graphs, appendices and a glossary, but its take-away seems clear: Developed economies need to cut spending, raise taxes and reduce medical benefits for their aging populations.

Yikes. How’s that for a popular platform to woo voters? But unless politicians and their public embrace austerity, the IMF report suggests that greater battles lie ahead than the credit implosion of the Great Recession.



soundoff (12 Responses)
  1. flip

    I love that capitalism is finally being exposed for the sham that it is! I welcome the collapse.

    June 18, 2010 at 7:30 am |
  2. joe

    the fire that burns.. globalization.. what a wonderful lie..

    June 18, 2010 at 9:55 am |
  3. Khoo Boo Boon

    Aren't these debt wars reflective of the classical social cycle theory in explaining the rise and decline of societies in general? The challenge is for governments to intervene effectively, timely and appropriately such that their own society will not degenerate into social stasis.

    Khoo Boo Boon
    Manila, Philippines.

    June 18, 2010 at 2:32 pm |
  4. hmm

    @flip: You may be missing the point: Governments are in danger of collapsing due to debt, which is caused by massive spending for entitlement programs and war, and has nothing to do with free-market capitalism.

    June 19, 2010 at 1:01 am |
  5. Hannible

    Capitalism is the biggest Ponzi scheme every invented. If prices don't continually go UP, particularly real estate, the whole thing will collapse!

    The Western world will go down as one of the dumbest societies that ever lived. Every time there is a problem we borrow money! If asset prices don't increase the whole system is bankrupt.

    June 20, 2010 at 3:54 am |
  6. davonskevort

    it comes down to one simple thing dont spend more than you make. Mankind can never have a government that gives away free stuff. Welfare, social security, healthcare.... because it provides those who lose a safety net. This is a race of survival you must run or die. You dont see many free rides in the animal world and we would do well to use our big brains to learn a thing or two from them.

    June 20, 2010 at 9:34 am |
  7. Joe

    This isn't exposing capitalism, it's showing that socialism is a short-sighted solution to our country's problems. Simply throwing money at inefficient government run agencies and programs such as Welfare, HUD, and now (our latest gem) public healthcare, is not the solution! This problem lies in our government spending far beyond our means for years to prop up people that don't want to work hard. It's actually directly in contrast to capitalism. Our country has an unemployment rate around 10% and yet we import millions of workers from other countries to do work that is 'too good' for us Americans, so instead these same people rely on governemnt payouts to get them by. Time to roll up our sleeves and get to work America!!!!!!!!!!!

    June 22, 2010 at 8:11 pm |
  8. Maccess

    Salaryman Kintaro has little to fear. That's because most of Japan's Sovereign debt is held by the Japanese themselves–known compulsive savers. Who else would hold paper that has yields a fraction of a percent per year for the last ten years? Japan's Debt Bubble wouldn't have gotten this big if not for the Japanese' Savings accounts and persistent deflation.

    The Yen, is in fact borrowed by the trillions every day by carry traders to fund interest rate swaps.

    If Japan's debt bubble were to collapse, it would be because they run out of people saving (young workers) vs people living off savings (e.g. retirees). War is another risk for Japan: it would greatly balloon the already giant deficit, and it would cut savings flos into Japanese Bonds.

    June 24, 2010 at 4:20 am |
  9. wally

    Willy-nilly we are watching the collaps of the free market system because it is fuelled primarily by profit margins and greed (both personal and corporate). The communist system failed also miserably. The only system that is gradually evolving and has a better chance of success is a carefully balanced position between these two extreams, capitalism and communism. Still, countries have to stop spending mega dollars on useless wars and divert funds to improve the lives and productivity of their own citizens, so that they can contribute to the common good of the nation. Americans are not used to this idea they call socialism. However they have no choice but to shed the old paradime and adopt new ways of reducing agressively the ballooning national debt, while looking after their own citizens' wellfare.

    June 24, 2010 at 6:24 am |
  10. thedragon

    wow some people are so naive – modern capitalism allows most people in fully free societies to make their own choices in life, to live eat work study where they want – all we need to do is work 8 hours per day and we are set. all tehse doomsayers about capitalism dont understand – the fac thtey have the time, resources, energy and technology is thanks to capitalism allowing allocation of resources to those who produce. if it wasnt for capitalism all the doomsayers would still be subsistence farmers. time to grow up eh?

    June 25, 2010 at 4:47 am |
  11. Xydaco

    Just wait until the Americas, Europe and Asia are all united. With one international currency. That will mark the begining of the end.

    June 28, 2010 at 12:49 am |
  12. Julz

    Good to see real eprxetsie on display. Your contribution is most welcome.

    January 22, 2012 at 2:39 am |

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