By Anders J. Maxwell

Market wags have characterized a succession of money losing investments with the above anthropomorphism. In the mid-'90's, this unflattering sobriquet was applied to venture capital; 10 years ago, to airlines; and recently, Japan. If this dubious distinction—“where capital goes to die”—was fitting for investment in Japan, consider prospects today, here in the U.S.A.

U.S. equity market indices have been treading water since 2000, but there are startling and more ominous similarities to Japan. Both economies experienced bursting bubbles due to inflated equity and real-estate values, and dysfunctional, nearly insolvent banking systems. Extending longer-term trends of increasing public and private debt, the ensuing economic collapse has been magnified and prolonged by this leverage. Taking into account total net indebtedness, debt as a percent of Gross Domestic Product is of similar magnitude for either country.

Such high debt burdens impinge on economic recovery, limiting the effectiveness of fiscal policy traditionally relied upon to stimulate growth coming out of a recession.

However, the two nations diverge in their respective ability to market the debt necessary to fund massive government deficits. Based on high historic savings rates, Japan's debt is almost entirely funded domestically. In contrast, lacking household savings, the U.S. is increasingly dependent on international bond investors—principally China and Japan. This seems imprudent given China's divergent ambitions and the competing demands on Japanese savings from post-tsunami reconstruction. An additional cause for concern is that since 2008's meltdown, the Federal Reserve has become the largest holder of U.S. Treasurys, funding its purchases by running a printing press, in lieu of capital-market support.

The best measure of the sustainability of these levels of national debt is the underlying growth in Gross National Product. At first glance, while the Japanese economy has grown at only a 0.9% average annual rate since 1990, when its asset bubble burst, the U.S. has expanded at 1.7% the past 10 years. Comparing these often-cited statistics, however, is not meaningful. A severe downturn overtook the U.S. only after 2006 and since that time, our economy has slowed to a 0.5% annual growth. Now roughly half the rate of Japan's growth, by this measure the U.S. will be seriously challenged to manage its debt load.

Recognizing the limits placed on fiscal spending by ever-growing deficits, with the U.S. economy mired in recession, the Federal Reserve adopted the Bank of Japan's controversial reliance on open-market purchasesof a variety of government and mortgage securities. So-called “quantitative easing,” this direct intervention appears an abject failure in Japan. Nevertheless, the Fed has pursued this tactic on a grand scale, resulting in its balance sheet ballooning to $2.8 trillion. This intervention inflates money supply and risks destabilizing the currency, while the intended consequence of zero interest rates presents a paradox. Depressed rates misallocate credit by force-feeding marginal investment, while the accompanying increases in credit standards freeze out overextended borrowers dependent on refinancing schemes to avoid or remedy default.

In spite of such unflattering comparisons, most market commentators continue to insist the U.S. is beyond so called “Japanization”—the risk of stagflation and the prospect of our own “lost decade.” This insistence seems justified solely contrasting a growing U.S. population (albeit at declining rates) primarily based on immigration, in contrast to Japan's decline. These demographics may impact years in the future, but are of little import in 2011. Other arguments raised are entirely subjective, ranging from accounting standards, work ethic and varying perceptions of central bankers.

Much more significant is the current global economic environment teetering on the edge of renewed recession, which exposes the U.S. economy at a critical juncture to additional risk. Furthermore, while the Japanese real-estate bubble centered on commercial-property speculation, and thus left personal consumption largely intact, in contrast, the U.S. housing implosion—compounded by personal borrowing that Japanese consumers historically avoided—is proving much more intractable.

The U.S. economy continues in a malaise, confronting major headwinds including an overextended household sector, which is overinvested in housing, a banking system in denial of embedded losses, and a global economy grappling with fundamental imbalances. In addition, the U.S. government bond market is highly dependent on China's support and a diminished investment capacity in Japan. With a presidential election next November, there is no prospect of government action that might otherwise ameliorate this confluence of adverse circumstances.

It's time that investors add the U.S. to the notorious list of investments characterized by probable loss - “where capital goes to die.” Securities of every stripe are implicated. Given the inflated value of U.S. equities and deflated bond yields, adjusting portfolios appears overdue.

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