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United States Debt wtf?

Submitted by on 2 April, 2018 – 4:32 pm

With all the talk these days about the national debt – the debt crisis in Europe, the roof of America’s debt debacle – I’ve been wondering how it compares the debt of the United States against other developed countries. Are we so indebted as it feels like we are?

U.S. ranks seventh on the Fortune list of the debt of developed countries, behind Japan, Greece, Italy, Iceland and other European countries. But like many things in the economy, the answers may change depending on how you do the math. If public debt is defined differently, the U.S. comes at the top of the list. So it’s worth digging a bit.

When economists discuss the national debt, which often focus on a relationship: public debt as a percentage of GDP of a country. This breaks down into two components.

The calculation of debt

First, debt held by the public. As you know, countries borrow money from a lot of different places, including banks, individuals, and foreign lenders. Obviously, the government has to pay that money.

But countries also borrow money themselves. Intragovernmental holdings Call, USA Examples of Social Security and Medicare trust funds. The public will not be liable for the money the government borrows from itself. Therefore, the calculation of the debt of a nation, some economists to withdraw funding and instead focus on the money that taxpayers must pay.

U.S. Debt ‘S total is $ 14.3 trillion. However, 6 trillion, which is money the government loaned himself, leaving a debt of $ 8.3 billion. This is the first component of the equation.

Weight in GDP

The second piece is the GDP, which is the monetary value of all goods and services a country produces. In other words, it measures the size of the economy. Currently, the annual U.S. GDP is about $ 14,800,000,000,000.

So what is the relationship between public debt and GDP? “In a sense, [the equation] tells you about the country’s ability to pay their debts,” said Jim Horney, senior vice president of federal fiscal policy at the Center for Budget and Policy Priorities. “It’s a bit like looking at the debt of a family when a mortgage. The issues of money, but what really matters is how that compares to their income. A family with a low income may find it difficult to pay, where another family with the same debt, but a higher income would not have problems. ”

If you do the math the total U.S. debt – $ 14.3 trillion divided by $ 14.8 trillion – you get 97%. In other words, 97% of annual earnings in the United States have already committed to debt. No lender in their right mind would lend money to a person – or country – that it takes a lot of that debt. But if you only look at the publicly held debt – $ 8.3 trillion divided by $ 14.8 trillion – the equation comes out to 56%. Because 56% of its revenue still is not great, but it is a great improvement of 97% and some can work with lenders.

Making comparisons

So how does America stack up to other developed countries in debt? Returning to the list of Fortune, the U.S. has the highest total debt of 10 nations that are “developed” and “debt”. (Japan is second, followed by Italy and France).

When calculated as a percentage of GDP, America falls to No. 7 on the list. (Japan jumps to No. 1 position, followed by Greece, Italy and Iceland). It is worth noting, however, that the total wealth of unused debt, debt held by the public. That makes the useful classification, but not ideal.

As for the importance of debt for the future of America, Horney sums it up: “There is no doubt that if we start taking sensible measures, we are able to stabilize the debt-GDP ratio, which is what we really need to do to start. The only road block is the people who say absolutely not considering the increase in real income (ie tax increases). We need a balanced approach that both revenue increases and cost reductions . If we can get the balanced approach as we had in 1990 … there is no doubt that we can get there. But if we can agree that the balanced approach, I am concerned us debt 150x150 United States Debt wtf?where we are headed. “

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