Back in April, most economic commentators snorted at Standard and Poor's decision to slap a negative outlook on U.S. debt. Although there are some reasons why this action actually made sense, it definitely raised a question: how bad will the debt problem in the U.S. have to become to result in an actual downgrade? Ultimately, it depends on the will of Washington to fix it. And that's what has S&P so worried. It might be helpful to put U.S. debt in context. So let's compare it to another large, developed nation that ran into debt woes a decade ago: Japan.
Let's go right to the chart, and then I'll explain it:
There's a lot going on here. First, the lighter bars are projections by the IMF, which is the source for almost all of this data. Only the 2010 value for U.S. debt-to-GDP comes from another source. I calculated it using the net debt level from the Treasury's website and GDP from the Bureau of Economic Analysis. It is the dark blue bar. Incidentally, what I calculated was very close to the IMF projection.
The red line represents the debt burden of Japan when S&P downgraded the nation's debt from AAA to AA+. This occurred in February 2001, which means that its debt burden is most closely reflected by the end-of-year figure for 2000. At that time, net debt-to-GDP was 60.4% for Japan.