#9 Japan - Serious debt restructuring needed if it is to avoid the "fear equilibrium."
Outlook: Japan needs the largest restructuring of its public debt to get to a stable fiscal path, according to the IMF. It continues to borrow at very low rates, nevertheless. There is the threat of a yield spike looming.
Details: Japan's low growth outlook and ove-reliance on its domestic market for debt purchases threatens its debt situation. Without a serious move to handle its fiscal balance, Japan could be hit with what Citi call a "fear equilibrium," in which investors begin to believe the possibility of default exists, yields spike, and so default becomes more likely.
#10 United States - Maybe the worst of all, but the world still trusts in U.S. debt.
Outlook: The U.S. may have the biggest debt problem overall, but it is supported by better growth potential than most of the eurozone or Japan. Markets continued to view the U.S. as risk-free in terms of both inflation and default, however, and that's keeping yields low.
Details: The U.S. situation looks even worse when including Fannie, Freddie, or unfunded liabilities. But markets risk free view of the U.S. is allowing continued use of fiscal stimulus (tax cuts) to drive growth.
It may take a major fiscal crisis for Democrats (no cuts to entitlement programs) and Republicans (no tax increases) to come to the table and sort out a fiscal package.