Despite its $39 trillion national debt, the U.S. barely cracks the top 10 in countries for debt relative to the size of their economies. While on the surface this may seem like a good thing, economists warn that actually, the U.S. still has more to worry about than even the countries with ballooning debt-to-GDP ratios.

The U.S. still has the largest national debt of any other country—with the total topping $39 trillion in May—more than double China’s $18.7 trillion debt, according to the most recent IMF World Economic Outlook data published in April. However, relative to the size of the economy, America’s debt ratio, about 126%, is still considerably smaller than Japan’s 204% and Singapore’s 172%. 

There’s no magic number for when a debt-to-GDP ratio becomes dangerous, but Japan’s 204% signifies that the country’s national public debt is double the size of its economy. In other words, if a country were to devote all economic gains toward paying off its debt, it would still take two years to pay the debt down completely. 

Even with a lower 122% debt-to-GDP ratio, the U.S.’s borrowing is still greater than the size of its entire economy. Apollo chief economist Torsten Slok warned the staggering rate at which the U.S. is accumulating debt—about $7 billion per day—is atrophying the nation’s ability to respond to a recession. That’s because the U.S. can’t readily add stimulus to the economy, such as tax cuts or infrastructure spending, lest it go deeper into the hole. But the Federal Reserve also can’t cut rates to incentivize borrowing because it runs the risk of hiking inflation and disrupting the demand balance for new bonds.

“The U.S. has never entered a recession with this little fiscal buffer,” Slok wrote in a blog post. “The standard recession playbook that growth slows, the Fed cuts, rates fall, and multiples expand breaks down when the sovereign borrower is already stretched.”

Yet economists aren’t sounding the alarm on Japan’s debt levels as they are with the U.S.—and others are calling foul on the use of debt-to-GDP ratio as a valid measurement of economic stability altogether.

Why Japan’s debt is different from that of the U.S.

Japan has defied the logic of expanding its debt without toppling its economy primarily because of how its debt is structured. About 90% of the country’s government debt is held domestically, in local banks and insurance funds, meaning there are few foreign investors who could dump bonds in moments of global economic panic. Japan also has a household savings rate worth about one-third of the country’s GDP—double that of the U.S.—with households saving more aggressively for longer retirements, further reducing Japan’s reliance on overseas bondholders.

“Japan’s debt dynamics are fundamentally different from those of the United States,” Jack Salmon, a research fellow at the Mercatus Center at George Mason University, wrote in a Substack post. “Japan is the world’s largest creditor nation. The U.S. is the world’s largest debtor.” 

But just because Japan isn’t as vulnerable to a recession doesn’t mean it’s a perfect example of why debt can continue to balloon under the right circumstances. Japan’s yen is depreciating—exacerbated by the Iran war pushing up oil prices, U.S. inflation concerns, and increasing demand for the dollar—and long-term bond yields are increasing. To fight this inflation, Japan must increase interest rates, which also raises the cost of service debt. Prime Minister Sanae Takaichi intends to increase deficit spending to spark economic growth, but risks stoking inflation further.

“Japan was never a comforting counterexample to concerns about U.S. debt,” Salmon said. “The fact that even Japan is now testing the limits of debt tolerance should finally end the fantasy that advanced economies can borrow without consequence forever.”

Some economists have taken issue with the entire validity of debt-to-GDP as a viable measure of economic health. Stanford Graduate School of Business professor and economist Jonathan Berk said in an interview with the university that the measure is similar to dividing a home mortgage balance by a year’s rental income; it ignores other variables like maintenance and insurance and doesn’t indicate if one can afford the mortgage in the first place.

“I don’t think it is necessarily the doomsday scenario that people paint,” he said.