NEW YORK (TheStreet) -- The markets are in turmoil because of the worry about the so-called PIIGS debts (Portugal, Ireland, Italy, Greece, and Spain).

In earlier writings, 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 are not significantly different from those of the PIIGS countries. I believe that the only reason the European contagion has not 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 We're Not Greece - Yet referred to a Royal Bank of Canada study which 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 the states' debt burden are nowhere near that of the PIIGS. This, "even after including unfunded liabilities for the states' employees' pension and other benefits."

As you will see below, I take issue with the above conclusion, and the first half of this piece will deal with why. Basically, citizens of each U.S. state are responsible not only for the debt burdens of their states and localities, but they are also responsible for their proportionate share of the federal debt. As you will see, the combination of the two produces debt ratios far in excess of those of the PIIGS.

Table 1 shows the PIIGS data that the markets are concerned with.

Table 2 shows estimates (for fiscal year 2010) of the Population (1), State GDP (2), State Debt/State GDP (3), Local Debt/State GDP (4), Unfunded Pension/State GDP (5), Other Unfunded Benefits/State GDP (6), Total Debt/State GDP (7), and Per Capita Debt (8) for the states mentioned in the Barron's piece plus Michigan.

Using CA as an example, the population is rapidly approaching 40 million, the state's GDP is estimated at $1.87 trillion, the State Government Debt/State GDP is 7.4%, Local Government Debt/State GDP is 17.2%, Unfunded State Worker Pension Liability/State GDP is 27.8%, Unfunded Other Health and Benefit Liabilities/State GDP is 3.3% for a Total Debt/State GDP of 55.7%. Translating this into Debt Per Capita reveals that every CA citizen owes $26,000 for debt or liabilities contracted by their elected officials. Looking back at Table 1, this isn't too different than the Debt/GDP ratio of Spain. And looking down the Total Debt/State GDP column of Table 2, it becomes apparent that both NJ and IL have Debt/GDP ratios equivalent to that of Spain.

But wait! Citizens of the states in the U.S. are also responsible for the debt piled up in Washington, D.C. So, to the debt of the states and localities, one must add the national debt. The first three rows of Table 3 shows an average of all State (row 1), Local (row 2) and Federal (row 3) Debt/GDP and the Per Capita dollars owed by each U.S. citizen.

Using the table, look at the intersection of the 'Cumulative (%)' column and '+Agency' row, which represents the recognized public debt of the federal government and its agencies and an average state and local burden. One can see that at 134.6% of GDP, debt burdens are higher than those of all of the PIIGS countries that have given the markets so much heartburn. Table 4 substitutes the debts of the states shown in Table 2 for the 'Average State' and 'Average Local' and shows the indebtedness of the citizens of these states per capita and as percentages of both State and U.S. GDPs. All of the states shown have Debt/GDP ratios significantly higher than that of Greece.

Now, I am not an expert on debt levels in European countries. And, it could well be that citizens of those countries have taken on public debt which would be similar to U.S. State and Local debt that isn't in the figures shown in Table 1. But, because the absolute levels of the Debt/GDP shown for the PIIGS have been a cause for concern, then the debts of the citizens of the U.S., and, specifically those states shown in Table 4, should also be cause for grave concern. For the most part, the European states are at least considering austerity measures. And while some U.S. states are being forced into austerity because of their inability to print money, the major contributor to the indebtedness, the U.S. Congress, doesn't seem all that concerned. This is a major difference from what is occurring in Europe.

So far in this piece, I have only talked about public debt. The site usdebtclock.org estimates total personal debt at $16.6 trillion, mortgage debt at $14.1 trillion, consumer debt at $2.5 trillion, and credit card debt at $848 billion. (Amazingly, of the four types of private debt, only consumer debt is shown at usdebtclock.org as expanding; the other three categories of consumer debt are contracting. I wish I could say the same about public debt!) So, on top of all of the public debt, each U.S. citizen, on average, owes privately $53,525. Adding the public and private debt together totals $117,181 per capita, or a total Debt/GDP ratio of 248% (see Table 3). Wow! Now That's a Lot of Debt!

Finally, as I have previously written (Overview - Economic Fundamentals Issues, The Ancora Advisor, Vol. 6, No. 1, January 19, 2010), the unfunded liabilities of Social Security and Medicare are nearly $109 trillion or about $352,000 per U.S. citizen (see www.usdebtclock.org/ ). That number alone is a Debt/GDP ratio of 745% and is so outside the realm of rationality that I didn't bother to put it in the table. Clearly, the recipients of these promises cannot possibly hope to receive such benefits in current dollars. Depreciation of the currency or significant cutbacks in the promises (or both) is inevitable. The recognition of the real magnitude of these irresponsible promises should be enough to cause a loss of confidence in the dollar. In my view, unless the U.S. moves to at least begin to address these issues, that day is closer than anyone might think.

All of the public debt was originated by governments and most of the private debt by banks or other financial institutions. In feudal times, serfs owed a significant portion of their toil to their lords. Have times really changed? The lords are now the politicians and "Too Big to Fail" bankers. Many ordinary people are serfs, highly indebted either voluntarily (private debt) or involuntarily (public debt). Looking at debt in this way helps to explain the unholy alliance between Washington and Wall Street and why the "Too Big to Fail" and Washington politicians get richer and richer at the public's expense.

While U.S. citizens are drowning in debt, the political system appears incapable of reducing it. In fact, the politicians continue to expand it in the erroneous belief that more debt will help. There are only two ways out: years of austerity or currency devaluation/inflation. The political system will not allow the former. Buy Gold!

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