Public debt is rising at its fastest rate since World War II, as pretty much every country around the world struggles to stimulate its economy. Who’s most at risk from the ballooning debt bubble? It’s an important question, since markets will eventually penalize countries that struggle to service their debt (already, there have been a slew of sovereign downgrades around the world).

Size matters when it comes to debt, but it’s not the only factor -- or even the most important one. Japan, for example, has for years carried the highest gross debt to GDP ratio of any major economy (IMF 2009 estimates put it at a whopping 217 percent), and it will continue to do so in the years ahead as well. Yet the bulk of Japanese debt is owned by the country’s pensioners -- which makes it an internal problem, one that will likely continue to result in slow stagnation rather than any major economic upheaval. Meanwhile, European nations like Italy (109.4 percent), Germany (76.1 percent) and France (72.3 percent) carry very large debt loads as well, but have for some time. For them, high debt is status quo, and while it’s not good for their longer term economic prospects, their politics and institutions are designed to cope with it.

More problematic are countries like the US and the UK, where debt loads used to be relatively low, but are now skyrocketing. Post stimulus, US debt now stands at 81.2 percent of GDP; Britain’s is 61 percent. But UK debt has been increasing fastest of any big nation, rich or poor -- between 2006 and 2010, Britain’s gross debt will have grown by nearly 59 percent. The UK’s fiscal position wasn’t great even before the crisis; now, it’s going to have big trouble adjusting to and servicing the new debt levels, especially as interest rates begin to rise. Already, Standard and Poor’s has downgraded its outlook for British sovereign debt from “stable” to negative. Gordon Brown didn't prepare his country well for any recession -- let alone this weird and prolonged one.

The U.S. is at risk too; its debt load is projected to increase by 45.7 percent between 2006 and 2010. But relative to European countries, demographics will help us. “The best way to lower debt is to grow,” notes AXA chief economist Eric Chaney, and a younger population will continue to result in higher trend growth rates in the U.S. versus Europe. That doesn't mean that we're out of the woods. The other thing that can lower debt levels is inflation -- and it's clear that policymakers are counting on that to a certain extent. But inflation is in a genie in a bottle and once out, is difficult to control. Let's hope that the solution to our debt bubble doesn't turn out to be a painful, 70s style inflation spiral.  

Mr. Lewis Goes to Washington: Ken Lewis, BofA CEO (but no longer its chairman!) testifies before Congress today. Felix Salmon says he did the right thing for the country when he agreed to acquire Merrill Lynch, but probably not the right thing for his shareholders.

Dollars and Sense: Tony private-equity firm KKR is losing its shirt, having borrowed tons of money to buy companies for inflated prices over the course of 2006 and 2007. But Dan Gross reports that one of its acquisitions is still in the black: Dollar General, the dollar store with 8,400 outlets across the country.

You Need to Work on Your Lats: Nouriel Roubini tells us that Latvia's currency, the lat, is about to come tumbling down. Sometimes I wonder if a smart programmer could create a Nouriel Roubini robot that homes in on the day's economic drama and automatically prophesies disaster. Wouldn't that be fun?

Another One?: You're forgiven if you forgot that the G8 finance ministers are meeting this weekend. Wait, is that an important one? Or is the G20 more important? Or the G2? It's hard to keep track. Anyway, Simon Johnson says they should agree to executive pay caps. I put the chances of that happening at roughly negative two percent.