Why the U.S.'s $39 trillion debt is riskier than Japan's
Debt-to-GDP ratio alone doesn't tell the full economic health story.
1U.S. leads in absolute debt size
The U.S.'s $39 trillion national debt more than doubles China's $18.7 trillion. Yet at 126% of GDP, it trails Japan (204%) and Singapore (172%). While this appears favorable, economists emphasize the U.S. faces greater systemic risks despite lower relative debt ratios.
2$7 billion daily debt accumulation
Apollo's Torsten Slok highlights the U.S. is borrowing $7 billion daily. This pace erodes crisis response capacity—leaving no fiscal space for tax cuts or infrastructure spending during potential recessions. The Fed can't cut rates without risking inflation either.
3Japan's structural advantage
90% of Japan's debt is held domestically by banks and insurers, preventing foreign bond selloffs during global crises. Household savings equal to one-third of GDP (double the U.S. rate) further reduce reliance on external creditors—a key stability buffer.
4The Fed's impossible dilemma
The Federal Reserve can't cut interest rates to stimulate borrowing without fueling inflation. As Slok notes, 'The traditional recession playbook fails when the sovereign borrower is already overleveraged.' This traps the U.S. in a low-maneuverability cycle.
5Japan testing debt limits
Yen depreciation and rising bond yields are pushing Japan's debt tolerance boundaries. PM Takaichi's deficit-spending plan risks exacerbating inflation. Experts conclude: 'Even Japan hitting debt limits shatters the myth of infinite advanced-economy borrowing.'
6Debt-to-GDP's measurement flaws
Stanford's Jonathan Berk compares debt-to-GDP to 'dividing a mortgage by annual rent'—it ignores critical variables. While imperfect, the metric still reveals vulnerabilities when paired with context like the U.S.'s unsustainable daily borrowing pace.
Original article: Fortune — ABD'nin 39 trilyon dolarlık borcu neden Japonya'dan daha riskli?