Forget PIIGS, US Debt Is Out of Control

The markets are in turmoil because of worry about the so-called PIIGS (Portugal, Ireland, Italy, Greece, and Spain) debts. In Fiscal Crises: The Next Shoe, I opined that Greece is just the canary in the coal mine and that when we look homeward, we have our own huge debt issues, which aren't significantly different from those of the PIIGS countries. I believe that the only reason the European contagion hasn't yet spread to America is because of the dollar’s status as the world’s reserve currency. That era is coming to an end, and it would behoove America to get its house in order.

A May 14, 2010 Barron’s piece entitled We’re Not Greece -- Yet (D. Henniger) referred to a Royal Bank of Canada (RY) study that concluded that “Although the states of California, New York, New Jersey, Massachusetts, and Illinois are comparable in terms of economic output and population to Portugal, Ireland, Italy, Greece, and Spain, RBC finds that states’ debt burden are nowhere near that of the PIIGS.” This, “even after including unfunded liabilities for states’ employees’ pension and other benefits.” As you'll see below, I take issue with the above conclusion, and the first half of this piece will deal with why. Basically, citizens of each US state are responsible not only for the debt burdens of their states and localities, but they're also responsible for their proportionate share of the federal debt. As you'll see, the combination of the two produces debt ratios far in excess of those of the PIIGS. (more)