People like to talk about various countries’ sovereign deb to GDP, but there’s really nothing special about government debt. What matters is total leverage, and it turns out, the US is already making progress on this front. We admit to being somewhat surprised that we’ve never seen this chart (via Morgan Stanley) before, it’s clear that on net, we’ve been deleveraging for a while now, even if nominal government debt continues to rise. Between the economic growth, and debt reductions at the household, things are already getting more “sustainable”.
Meanwhile, this totally explodes any silly notion that the US is somehow worse than Greece.
Between this fact, and the fact that government interest payments as a percentage of GDP are already on the decline, it’s really unclear what the big problem is.
One other thing to note: When you think of total debt-to-GDP the entitlement “crisis” isn’t such a big deal, since all future entitlement payments are both liabilities (for the government) and assets (for the people).
Photo: Morgan Stanley
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