Is American $17 trillion in debt?
That’s the headline number that’s referred to in all the debt-ceiling budget-busting filibustering debate. That’s the total of US Treasury debt that’s owned by the public, the Fed, and the Social Security Administration—along with various trust funds. But some people are challenging that figure. Stanley Drukenmiller—a legendary investor, who famously helped break the Bank of England in 1992—maintains that the national debt is actually $205 trillion. That’s the present value of all Federal promises from here to eternity–healthcare, social security, highway maintenance, everything. It’s roughly 13 times the size of the economy.
But there’s another way of calculating the debt—as debt held by private bondholders. By this calculation—subtracting out Social Security and the various Federal Trust Funds—the Federal Government owes a little less than $12 billion—about two-thirds of the economy.
So which is it? In a way, both figures are right. Our iron-clad court-tested obligations are relatively modest. But our expansive current system—with healthcare and an inflation-indexed annuity guaranteed by the Federal Government—is huge. If something cannot continue it will stop. But promises mean something—and changing them costs something.
The contractual promises of the Government are modest. But the political promises are immense. If we can’t find a way to make our reach fit within our grasp, our economy will not lead the world. And that will be a shame.
Douglas R. Tengdin, CFA
Chief Investment Officer