U.S. Economy: Federal Debt- How big is it?

(Updated: Dec 2012)

Lots of numbers: Trying to get a clear picture of U.S. government debt can be frustrating. The government owes:

• 60% of GDP: bonds owed to private entities, both foreign and domestic
• 100% of GDP: if we add bonds owed to the government-itself (e.g. Social Security "trust fund", Federal Reserve)
• 400%+: if all Fed promises to social security and medicare recipients are met (they won't be) [Note: 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!]

A snapshot: The U.S. government (officially) owes about US $16 trillion to the public, plus to the Fed, plus to the "trust funds".  The GDP of the U.S. is approximately $16 trillion. (Both these were about $15 Tr. last year.) 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 $ 64 trillion ($58 tr. last year), 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, of which $5 trillion is back.)

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 $16T in federal debt, approximately $5.5 is owed to foreigners, $4.2 trillion domestically, $1.7 trillion to the Federal Reserve, and $4.8 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 biggest jump since last year was in bonds held by foreign entities, up from $4.5 Tr. to $5.5 trillion.The government makes estimates of which countries (and their citizens) hold the government debt owed to foreigners.

This pie-chart (one year old -- 2011) shows the break-down, with China holding about $1.2 Tr and Japan holding about $1 Trillion.

International Comparison: This next chart (from 2010) 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"
Also see Part 3: Other Unfunded Liabilities