21 understanding of a country’s rising environmental constraints may also point the way to possible remedial actions.

According to data released by the United States General Accountability Office and summarized in _The Financial Report of the U.S. Government_ , total assets in 2012 were US$2.75 trillion, while total liabilities (consisting mainly of debt held by the public and federal employee and veteran benefits) were US$18.85 trillion, leading to a current net worth of negative US$16.10 trillion, or about 118 percent of GDP. However, the actuarial balances associated with the disbursal of pension benefits through the social security system and the payment of Medicare health benefits to the elderly show a net present value (over a 75-year horizon) of negative US$38.55 trillion. Adding this sum to the current net worth results in an intertemporal net worth of US$54.7 trillion, equivalent to - 422 percent of GDP. In a nutshell: the U.S. government is insolvent and, absent major changes in policy, is currently on an unsustainable fiscal path. Worryingly, this indicator of net worth in 2007 was US$52 billion, equivalent to -378 percent of GDP and was around -200 percent of GDP in 2000, a dramatic worsening of the U.S. fiscal position in slightly more than a decade. As expected, the global financial crisis and the policy responses to it have greatly enhanced the unsustainable nature of the U.S. public finances. Indeed, the position of the consolidated government (federal as well as state) is actually worse since state finances are in dire shape and the financial condition of Medicaid, the States’ health benefits for low-income families is actually worse than that of Medicare.

# **_A fiscal implosion is not inevitable_**

None of the above is intended to suggest that a fiscal implosion of some sort in the future is all but inevitable, whether in the United States and/or many of the other countries who currently find themselves facing a heavy debt burden. Even if the outlook is unusually uncertain and there are numerous risk factors which might dampen one’s optimism about the future path of the global economy, it is still the case that measures can be taken today that can greatly diminish the likelihood of a future crash. Recent economic history is full of examples of countries which were able to get out of what appeared to be unsustainable fiscal paths. Buiter (1985) shows that the time path of the United Kingdom’s debt-toGDP ratio is largely a function of whether the country is at war or not.

Governments incur obligations during or immediately after wars and use peacetime conditions to reduce their debts. The all-time high for the UK’s debt-to-GDP ratio was 288 percent in 1821, following the Napoleonic Wars, but was also high at the end of both World Wars, with the ratio equal to 272 percent in 1947. A combination of solid economic growth and prudent fiscal policies, however, had brought the ratio down to 48 percent by 1975, where it remained broadly stable for the next several decades. The debtto-GDP ratio in the United States peaked at around 110 percent immediately after the end of the Second World War but had fallen below 50 percent by the late 1950s (it also jumped by over 30 percentage points around the time of the Civil War).

Chile’s debt-to-GDP ratio in the mid-1980s reached over 100 percent of GDP, soon after the collapse of its banking system (which went into default on its foreign currency debts) and its most pronounced recession in the postwar period. However, a combination of