A recent study claims Britain’s national debt is three times higher than official government reports. If this is correct, Britain could be the most indebted nation in Europe. Yet, a UK Treasury spokesman claims the calculations are “spurious” because the government does not legally have to account for public sector pensions or liabilities of other publicly owned entities.

Has the UK government been covering up its true spending or not?

According to the study, conducted for the respected Center for Policy Studies, Britain’s public debt is around £1.34 trillion—the approximate equivalent of £53,000 per household in the UK—a far cry from the £487 billion the government officially reports.

As the study reveals, the UK government has promised, but not reported, £810 billion in pensions, plus £25 billion to other publicly funded interests like hospitals, schools and roads. The report also says that the government does not account for the £18 billion owed by the national utility Network Rail.

“The public has a right to know the true extent of the liabilities which future generations of taxpayers will have to meet,” say authors Stephen Hammond, the shadow transport minister, and Brooks Newmark, a Conservative member of the Treasury Select Committee. “Action to control the debt that is being incurred for future generations cannot be taken without an honest assessment of its true extent.”

However, people who want the government to officially recognize and report its true debt should be careful what they wish for.

If the UK government suddenly tripled its official debt, with one stroke the debt would become approximately as much as the nation’s entire gross domestic product (the total value of all goods and services produced in the country). Consequently, the UK’s credit rating would probably be significantly downgraded and the government would be forced to jack up interest rates (possibly by several percentage points) to continue to attract lenders. The end result would likely be sharply higher interest rates for all Brits, as well as rising future national debt interest payments.

By not reporting the true nature of Britain’s national debt, the government postpones the day of reckoning—for a little while, anyway.

But Britain is not alone in misrepresenting its liabilities—America is in the same boat. If America were to officially report its Social Security, pension and Medicare liabilities, the true U.S. national debt would be not the $8.6 trillion it officially acknowledges, but close to $53 trillion—four times the value of all the goods and services produced in America for a full year! Like Britain, America cannot afford to officially recognize its promises.

However, debts do not go hidden forever—eventually it is time to pay the piper. For example, the baby boomers are approaching retirement. In America, the first ones begin to retire in 2008; with rapidly increasing retiree numbers thereafter. As boomers retire, they will legitimately expect to receive the benefits they were promised and taxed for.

What will be the final result of the massive debts incurred by the British and U.S. administrations?

Historically, when governments are faced with massive and growing debts they tend to take the way out that is politically most palpable, the way that causes the least immediate voter backlash. In this case it means that instead of cutting services, slashing retirement pensions and Social Security benefits, the government will probably inflate its way out. It will just create the money needed to pay the debts.

Of course, creating money has many negative consequences as well, but sometimes it can be hidden longer. Yet the end result is always the same: falling currency, destroyed savings, rising prices and an all-around lower standard of living.

The days of pretending that this problem doesn’t exist are rapidly becoming untenable. Will you be protected from the coming economic fallout?