Is the U.S. in Worse Fiscal Shape than Greece?

Greece's deficit is roughly 14 percent of GDP and its gross debt is about 115 percent of GDP. The U.S. (federal and state) deficit is roughly 12 percent of GDP. Our gross debt is about 100 percent of GDP.

Yet Greek ten-year government bond yields are running close to 10 percent, while the U.S. ten-year Treasury bond yield equals 3.75 percent.

What's wrong with this picture?

Just about everything, especially if you factor in the implicit debts of the two countries.

Let's start with the debt figures. They are gross debts, not debt held by the public. For Greece, we don't know the debt held by the public. At least it's not been made public to my knowledge. This is the only debt that's relevant because the rest of the debt is owed by the government to itself. Then there are also financial assets owned by each country. They should be netted out against the debt. We don't have these figures either or at least not in forms that are readily comparable across the two countries. So the debt and deficit numbers need to be taken with a very large grain of salt.

In the U.S., implicit debt (obligations to make Social Security, Medicare, and Medicaid transfer payments) swamp the official debt by a huge order of magnitude. Indeed, the U.S. fiscal gap (the difference, measured in present value, between all future expenditures, including servicing the official debt, and all future government tax and non-tax receipts) appears to be about 11 times U.S. GDP!

The U.S. fiscal gap is huge because the implicit debt is huge, and the implicit debt is huge because, over the next decade, Medicare and Medicaid benefit per beneficiary levels are projected (by the Congressional Budget Office) to grow at a real (inflation-adjusted) rate that is 2.1 percentage points higher than the CBO projects per capita GDP will grow. After 2020, the CBO projects ongoing excessive benefit level growth, but the differential is smaller. The CBO is basing its projection on 40 years of past excessive growth rates in these benefit levels. If anything, the CBO's projections may be optimistic.

For Greece we don't know its fiscal gap because no one has bothered to measure it. My guess is that we'll get that measurement shortly and that it will show a Greek fiscal gap that is a much smaller share of GDP than is the case for the U.S. The reason for this belief is that Greece has much tighter control over its government healthcare spending.

So in comparing the U.S. and Greece, we are, to a very large extent, flying blind. But what we know points to a much worse situation in the U.S. than in Greece.

Greece can't print its own money, so it can't escape its official debts by running inflation and watering down their real values. If it wants to escape its official debt, it would need to formally default.

The U.S. can print money and has been doing so like crazy of late. This could quickly lead to very high inflation, if not hyperinflation, once the markets get a real understanding of the magnitude of U.S. fiscal insolvency and start running on the dollar. In inflating the U.S. will also default on its official nominal debt, but by paying back what it owes in watered-down dollars.

This understanding of the true fiscal position of the U.S. may come in a few weeks when the IMF releases a new study of U.S. long-run fiscal sustainability. As a consultant to the project, I can tell you, the picture will not be pretty. I can also tell you, I'd feel safer holding Greek bonds than long-term Treasuries at this point. But the safe course is to hold neither.

Laurence Kotlikoff is a professor of economics at Boston University, President of Economic Security Planning, Inc. (see, and the author of Jimmy Stewart is Dead: Ending the World's Ongoing Financial Plague with Limited Purpose Banking.