The Real Economy

Is the U.S. going broke? Not remotely.

Jul 06, 2023

Key takeaways

It’s common to hear the U.S. is going broke and cannot afford its spending.

But U.S. finances are relatively healthy within compared to total assets.

Total government debt comprises about 23% of total nonfinancial assets of $143.6 trillion—a manageable amount.

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It is common to hear that the United States is broke and cannot afford to continue spending and borrowing at its current pace.

Indeed, that was the argument put forward by some to justify the fourth debt ceiling standoff over the past 12 years. 

While one can make a credible argument to pull back on government spending during a time of inflation, it is simply not true that the U.S. is on the verge of a debt and deficit crisis.

In contrast, the financial health of the United States is relatively healthy within the context of the total value of U.S. assets.

A much different picture appears once one looks at the underlying asset base of the private and public economy.

The total debt of U.S. governments (federal, state and local) is $33.6 trillion, with the federal portion accounting for $31.4 trillion. At first glance, that figure underscores the argument to cut back on spending and the need for a periodic crisis to create the conditions for spending restraint.

But once you consider that figure within the context of the total economy, you obtain a very different outcome.

Total government debt comprises about 23% of total nonfinancial assets of $143.6 trillion. That implies that the U.S. economy—despite large nominal private and public debt—sits on an asset base four times larger and an economy that generated a nominal gross domestic product of $26.4 trillion through the first quarter of this year alone.

When viewed within that context, as well as the annual growth of GDP, $33.6 trillion in government debt, as high as it seems, is manageable.

The plain fact is that the U.S. regularly issues Treasury notes that generate strong domestic and global demand. Investors and other countries line up to purchase U.S. securities.

Not only does that unmask the flawed arguments that look to justify a standoff over raising the nation’s debt ceiling, but it also illustrates the risk around even a technical default on just a part of the roughly $31 trillion American fixed income market.

That’s not to say we should ignore government policy or the mismanagement of government finances. In fact, using fiscal policy, whether higher taxes or lower spending, to cool off the economy during a period of elevated inflation is entirely reasonable, but even today, that’s not being used. 

Total U.S. nonfinancial assets and total government debt

Is a recession on the horizon? Read more perspectives on economic headwinds facing the middle market from RSM US. 

Economic and financial shocks

It is particularly important to note the long-term consequences to the economy and society of creating conditions in which another financial crisis occurs.

The 1928 stock market crash became a bank run, and then came the Great Depression. High-risk mortgage securitization eventually brought down financial centers across the globe and created the Great Recession.

Government finances were still dealing with the consequences of additional unfunded spending when the pandemic brought on another shock to the global economy.

There have been two jumps in government debt relative to nonfinancial assets since 1980.

The first jump started in the 1980s during a period of high military spending, tax cuts and in an era in which growth averaged 3.5%.

Total government debt*

Then an era with increased revenues followed, resulting from the 1990s tech boom and a jump in productivity, causing a period of strong tax revenues, balanced budgets and fiscal surpluses.

The Great Recession and the slow recovery after the 2008 financial crisis caused the second jump in government debt relative to nonfinancial assets.

It is also important to note that the economic recovery that followed the financial crisis was slower than it would have been otherwise because of fiscal austerity caused in part by the 2011 debt ceiling agreement. 

U.S. government finances have improved compared to total nonfinancial assets.

The budget and deficit spending

U.S. government finances have improved compared to total nonfinancial assets. And in terms of the budget, expenditures have been receding as the pandemic income assistance programs ended and the economy went into overdrive.

Government deficit spending*

Tax revenues have increased along with higher rates of employment and higher wages for low-income workers. The data presented here should serve as a potent counterweight to the notion that the U.S. is on the verge of debt and deficit crises or can no longer finance its operations in the open global market. 

The American economy is not on the verge of a systemic crisis because of government debt.

But as long as a debt ceiling exists, there is always the chance of a miscalculation on one part of the political authority that will plunge the United States into default and a financial crisis.

The debt ceiling is a relic of the past that should be put to sleep. Permanently.

RSM contributors

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