“America is drowning in debt!”
It’s a phrase you hear constantly regarding the Federal government’s debt, household debt, corporate debt, financial debt, etc. Almost nobody challenges the premise.
Capital Economics is out with a fantastic new report titled simply ‘America is not drowning in debt’ which methodically debunks the myth.
The firm was kind enough to let us run some of their excellent charts.
The first two are the charts that everyone is already familiar with that yes, debt relative to GDP looks high.
If you add up all debt (private, financial, government, etc.) we’re at about 350% debt-to-GDP.
Here’s a breakdown of debt by category. Government debt is close to 100% of GDP. Household debt is around 80% of GDP.
But remember, solvency isn’t about debt. America has assets too.
Total assets are around 1300% of GDP! That’s far above total liabilities.
Domestic net worth is around 550% of GDP.
So as you can see, America has massively more assets than debt.
And if you think that total debt of 350% of GDP sounds like a lot, then 550% net worth to GDP should be really comforting.
Another myth is that America is massively in hock to foreigners.
But actually, foreign holdings of credit market debt is less than 20% of of the total outstanding.
And finally, foreign liabilities have been dropping massively relative to GDP. They’re actually negative relative to GDP based on domestic ownership of external assets.
Bottom line: The US has far more assets and net worth than debt, and we don’t really owe much to the outside world.
.Ruby Tuesday. / Flickr
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