US Government Debt

During the current global financial crisis there has been a lot of talk about US government debt. So I decided to spend a little time getting my head around the numbers. It turns out the beavers that build wikipedia have done most of the work for me. However this puzzle depends a little on how you look at things. At first glance debt levels don’t look too shocking.

US Debt from 1940 to 2007. Red lines indicate the public debt and black lines indicate the gross public debt.

US Debt from 1940 to 2007. Red lines indicate the public debt and black lines indicate the gross public debt.

 The line of most interest is the net debt position of the government. The red line in the chart. In relative terms it is hardly at any sort of long term historical high. And whilst debt levels were lower in the 1970s that period is hardly an advertisment for good economic policy.

Making the numbers even more respectable is the extent to which the debt is interest free. As indicated by the following chart about half the US government debt does not cost the government anything at all in the way of interest.

Debt Profile

Debt Profile

So far the debt situation in the US doesn’t look too dire. However when we project forward (always a tricky activity) on the assumption that there is no reform to social security or other benefit programs then we get a less palatable view of things.

Projected government debt

Projected government debt

Clearly this image is dire. However it would seem to be a future problem rather than a current problem (but still a problem). It would seem to suggest that rather than having a debt problem the US currently has an entitlements problem that if untreated will become a debt problem (or a disappointment problem). Given the historical context I am unconvinced that reckless US government borrowing of a recent nature has been the prime cause of the current financial crisis. Although I far from convinced that all that spending has been wise.

2 thoughts on “US Government Debt

  1. It’s the bunching up of debt in the next few years that worries markets. there is also the fact that almost every western government is going on a bond selling spree.

    last week Germany held an auction and 30% was left unbid. Germany has the benchmark in the the EU by the way.

    There is also the question of future US liabilities and although they are a long way forward it doesn’t look like that the present or even future political calls has the balls to do something about it.

    Future liabilities in Europe and Japan look even worse and they’re going top hit pretty soon.

  2. I feel better after reading your informative article. No interest on 50% of the debt? I can believe that because the richest man where I live gets no interest when he borrows money and who could be richer than the government? Therefore I say, pass that Obama Stimulus Package especially the money is going to the tax payers where the money belongs. The government has to be careful though about the ramification that you talked about at the end of your article. I hope you send this work of yours to the government’s Finance Committee, or whatever they call it as they may be overlooking the problem you mentioned.

    Evelyn Guzman
    Debt Challenger

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