Lots of numbers: Trying to get a clear picture of U.S. government debt can be frustrating. One article says the government owes 60% of GDP, while another says it is 100%. One source says the off-balance sheet liabilities (for "entitlements") are 4 times the acknowledged liabilities, while the GAO claims that adding another 2% (of payroll) to the current 13% payroll tax would keep social security funded for more than 70 years!
Let's look at the official "on balance sheet" numbers first. The main reason why the reported numbers vary is that some only count money owed by U.S. government to others (i.e., they do not count the debt owed to the Federal Reserve or the debt owed to the Social-Security "trust fund"). Counting only debt to the "public", the government owes about 60% of GDP; counting everything, it owes about 100% of GDP;
A snapshot: The U.S. government (officially) owes about US $15 trillion to the public, plus to the Fed, plus to the "trust funds". The GDP of the U.S. is approximately $15 trillion. To put this in perspective: adding up the assets of everyone in the U.S. and subtracting liabilities, we get a "net worth" that adds up to about $58 trillion, shown by the blue bar at the top of this chart.
The bar in the middle is the government debt.
(Aside: The portion marked "gone" is wealth that disappeared in the recent bust. All figures here are nominal and many assets (like homes and stocks) are valued at market prices. In the recent bust, home values and stock-prices dropped, bringing nominal net worth down by about $10 trillion.)
Annual budget: The bar at the bottom shows the annual GDP. The purple is taken as taxes and spent by the government (importantly, this excludes payroll taxes!) The red portion, is borrowed and spent, viz. the annual federal deficit of over $ 0.6 trillion. Visualize adding more such red portions each year, going to the right. One can see that in a few decades, all the wealth in the U.S. won't be enough to pay off the government debt. (We would never get there, because we'd have a financial collapse well before we're actually bankrupt).
Breaking down Federal Debt: Of the $15T in federal debt, approximately $4.5 is owed to foreigners, $4.5 trillion domestically, $1.5 trillion to the Federal Reserve, and $4.5 Tr. to the "trust funds". [All figures are purposely approximate -- i.e. give or take half a trillion. It is the order of magnitude that matters more, so I chose rounding that helps memory.]
Foreign holders of U.S. government debt: The government makes estimates of which countries (and their citizens) hold the $4.5 trillion of government debt owed to foreigners.
This pie-chart shows the break-down, with China holding about $1.2 Tr and Japan holding about $1 Trillion.
International Comparison: This next chart compares the government debt of various countries, expressed as a percent of their GDP. (Source: IMF via Wikipedia). The scary part is that the U.S. is pretty bad by this measure. At the same time, consider that Japan is more than twice as bad by this measure, and there is still a large appetite to buy Japanese bonds at extremely low interest rates. Finally, notice that even though China is reputed to be a creditor to the world, these statistics show that their government has borrowed about 33% of its GDP (the Chinese central bank might be excluded from this calculation).
A caveat on Incompleteness: "Off balance sheet" liabilities, like commitments for Medicare and Social-security (not addressed in this post) can make a huge difference to these numbers. As mentioned earlier, some estimates are as high as $62 trillion, dwarfing all else. Also not addressed: the private saving and investment which can help wealth grow. Those two deserve separate posts.
Also see Part 2: Unfunded Liabilities for "entitlement programs"
Let's look at the official "on balance sheet" numbers first. The main reason why the reported numbers vary is that some only count money owed by U.S. government to others (i.e., they do not count the debt owed to the Federal Reserve or the debt owed to the Social-Security "trust fund"). Counting only debt to the "public", the government owes about 60% of GDP; counting everything, it owes about 100% of GDP;
A snapshot: The U.S. government (officially) owes about US $15 trillion to the public, plus to the Fed, plus to the "trust funds". The GDP of the U.S. is approximately $15 trillion. To put this in perspective: adding up the assets of everyone in the U.S. and subtracting liabilities, we get a "net worth" that adds up to about $58 trillion, shown by the blue bar at the top of this chart.The bar in the middle is the government debt.
(Aside: The portion marked "gone" is wealth that disappeared in the recent bust. All figures here are nominal and many assets (like homes and stocks) are valued at market prices. In the recent bust, home values and stock-prices dropped, bringing nominal net worth down by about $10 trillion.)
Annual budget: The bar at the bottom shows the annual GDP. The purple is taken as taxes and spent by the government (importantly, this excludes payroll taxes!) The red portion, is borrowed and spent, viz. the annual federal deficit of over $ 0.6 trillion. Visualize adding more such red portions each year, going to the right. One can see that in a few decades, all the wealth in the U.S. won't be enough to pay off the government debt. (We would never get there, because we'd have a financial collapse well before we're actually bankrupt).
Breaking down Federal Debt: Of the $15T in federal debt, approximately $4.5 is owed to foreigners, $4.5 trillion domestically, $1.5 trillion to the Federal Reserve, and $4.5 Tr. to the "trust funds". [All figures are purposely approximate -- i.e. give or take half a trillion. It is the order of magnitude that matters more, so I chose rounding that helps memory.]
Foreign holders of U.S. government debt: The government makes estimates of which countries (and their citizens) hold the $4.5 trillion of government debt owed to foreigners.
This pie-chart shows the break-down, with China holding about $1.2 Tr and Japan holding about $1 Trillion.
International Comparison: This next chart compares the government debt of various countries, expressed as a percent of their GDP. (Source: IMF via Wikipedia). The scary part is that the U.S. is pretty bad by this measure. At the same time, consider that Japan is more than twice as bad by this measure, and there is still a large appetite to buy Japanese bonds at extremely low interest rates. Finally, notice that even though China is reputed to be a creditor to the world, these statistics show that their government has borrowed about 33% of its GDP (the Chinese central bank might be excluded from this calculation).
A caveat on Incompleteness: "Off balance sheet" liabilities, like commitments for Medicare and Social-security (not addressed in this post) can make a huge difference to these numbers. As mentioned earlier, some estimates are as high as $62 trillion, dwarfing all else. Also not addressed: the private saving and investment which can help wealth grow. Those two deserve separate posts.Also see Part 2: Unfunded Liabilities for "entitlement programs"
0 comments:
Post a Comment