The United States has a horrendous debt problem. This is so well known, it's become an assumption, something no one really challenges or examines in detail. While doing research for an initiative to establish debt policies for the Westminster City Finance Department, I learned that the public discussion about debt in this country is only part of a very messy, challenging problem.
The federal debt is all we hear about, and even this number is rarely quoted the same way twice. Is it $10 trillion? $15 trillion? $18 trillion? The source for all the data in this column comes from the St. Louis Federal Reserve webpage, at research.stlouisfed.org/fred2. The most recent time frame with data for all categories was the first quarter of 2012, so this information is about six months old.
As of earlier this year, the federal debt was around $11 trillion. If you see the number $15 trillion quoted, that is total public debt, which is the sum of federal debt, plus state and municipal debt (about $2 trillion), plus the debts owed between government agencies (mainly Social Security, also around $2 trillion). That is the $15 trillion number, but if you are only talking about federal government spending, the actual current number is $11 trillion.
Any number for federal debt larger than $15 trillion is a projection, based on all manner of assumptions about spending, taxes and growth, which can easily change given the crazy state of our political system.
How big a problem is this? Currently, the U.S. Gross Domestic Product is around $13.5 trillion, which means federal debt is about 81 percent of everything we produce in a year. Add in the state and municipal debt and that takes us to 111 percent of GDP.
That seems like too much, but compare it to your own situation. It's not unusual for mortgage debt to be much greater than annual income. A mortgage of $200,000 for a family taking in $100,000 per year isn't unusual at all.
As they say on the infomercials: but wait, there's more.
The staggering piece of information I was clueless about until recently, and which receives very little attention in the media or our political debates at any level, is the size of private debt in the U.S.
Out of our total debt in this country, a whopping 72 percent is held in private hands.
Private debt is made up of households, businesses and the financial industry. Each of them account for roughly equal amounts of outstanding debt, totaling a mind-boggling extra $39 trillion. That's right, private debt is more than two and a half times larger than all public debt combined. The total debt in the U.S. today is $54 trillion, only $11 trillion of which is federal.
So why aren't we talking about this more? I honestly don't know.
To put it in historical perspective, we've never had this much debt before in history. Even worse, we've never had anywhere close to this much debt relative to GDP in our history.
The next closest time was in 1933, at the depths of the depression, when the percentage of debt to GDP was just less than 300 percent. Today we're at 350 percent. This is truly uncharted territory.
The next time you hear someone complaining about debt in this country, remind them that the government isn't the only segment of society living beyond its means.
