Double Debt Dealing

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

By | 2013-10-22T09:55:48+00:00 October 22nd, 2013|Accounting, economy|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. –
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