The real national debt

Double click to enlarge.

I just came across an interesting Wikipedia article, with facts and figures indicating that the federal government’s debt, which we hear so much about, is only a part of U.S. indebtedness.  We call the government’s debt the national debt, but it is small compared to the  total debts of financial institutions and of individual Americans.

The green strip on the chart is the federal government’s debt, the yellow strip is the total debt of American households, and the orange strip is the total debt of American financial institutions.

In 1946, the total US debt-to-GDP ratio was 150%, with two-thirds of that held by the federal government. Since 1946, the federal government’s debt-to-GDP ratio has since fallen by nearly half, to 54.8% of GDP in 2009. The debt-to-GDP ratio of the financial sector, by contrast, has increased from 1.35% in 1946 to 109.5% of GDP in 2009. The ratio for households has risen nearly as much, from 15.84% of GDP to 95.4% of GDP.

via Wikipedia.

According to this article, the bulk of the debt held by U.S. financial institutions – $8 trillion worth – consists of government-guaranteed mortgages, which is nearly equal to the federal government’s own debt.  This means the government’s potential liability is nearly double what is reported.  (I can’t get used to quoting figures in trillions of dollars; for me, billions of dollars are an unimaginably large amount.)

What I get from the chart and the accompanying article is that the best way to improve the debt-to-GDP ratio by putting Americans to work on useful things, which will increase the GDP and gives us the means to pay down our debts.

Click on Financial position of the United States to read the full article in all its complexity.  Click on the discussion thread for argument as to the meaning of the figures.

Hat tip to Obsidian Wings.

Tags: Debt, Financial debt, Government debt, Household debt, National debt