Hedgeye guest Daniel Lacalle says US explicit debt (~$40 tln) is
headline-grabbing but not necessarily the first crack. Official US estimates put
the present-value shortfall for Social Security and Medicare at about $95 tln
over 75 years—roughly 5% of the cumulative PV of expected GDP—and federal debt
in 2026 is forecast at about 101% of annual GDP. By contrast, euro-area hidden
fiscal liabilities are at least as large as headline debt: the European
Commission estimates net accrued public pension liabilities at about 150% of GDP
and total pension promises at roughly 371% of GDP after future contributions;
this excludes most future health and long-term care costs. Several large
euro-area states have unfunded commitments exceeding 300% of GDP. Political
resistance to spending cuts, French sovereign yields now above Italy's, and
negative real returns on euro-area sovereign assets have been reduced since 2021
investor appetite. Lacalle warns the next sovereign shock could originate in the
euro area because member states borrow in a currency they do not control and
reported debt follows the EDP headline measure rather than total public-sector
liabilities. He adds recent global bond selling signals markets believe central
banks can no longer mask fiscal imprudence; US Treasures remain the global
monetary and benchmark collateral, but euro-area fiscal risks are comparatively
larger.
