GLOBAL – The chairman of the Federal Reserve Bank of New York, Peter Peterson, says a “demographic iceberg” is set to hit the developed world.

“A demographic iceberg looms in the future of the largest and most affluent economies of the world - the challenge of global aging,” Petersen wrote in a newspaper article.

“What's visible above the waterline is the unprecedented growth in the ratio of elderly to working-age people. What lurks beneath the surface are the wrenching fiscal and economic costs that threaten to bankrupt even the greatest of powers, the United States included.”

He cited figures from the Center for Strategic and International Studies that show that between 2000 and 2040 the average bill for pensions to the elderly in the developed world will grow by over six percent of GDP.

“But pensions aren't the only public costs that rise as populations age. All told, the cost of public retirement benefits - pensions and health care - is on track to balloon by 12 percent of GDP in most of the developed countries.”

Writing in the Boston Globe, Petersen says the increase is more than three times what the US currently spends on defence. And he adds that it also represents an extra 25% from taxable wages. “In short, these kinds of increases are unthinkable - politically, economically, and socially.”

Reform won’t be easy as “the politics are absolutely toxic”. And the problems will “raise fundamental questions about the future of the developed world” in terms of growth, financial markets and economic blocs.

“Unlike many predictions about the future, global aging is not a mere hypothesis. It is as close as social science comes to a certain forecast,” he concludes.

Petersen is also the author of "Gray Dawn: How the Coming Age Wave Will Transform America - and the World''. The NY Fed is part of the US Federal Reserve System, though Petersen does not sit on the Federal Open Market Committee which sets monetary policy.

Meanwhile, the US Pension Benefit Guaranty Corp. has reported a deficit of 8.8 billion dollars. The agency, which insures retirement plans for 44 million current workers and retirees, had forecast 5.7 billion-dollar deficit earlier this year.