U.S. government debt has received much attention of late — both inside and outside Washington — as Congress begins its deliberations over raising the federal debt ceiling. However, the charged political climate in our nation’s capital, as well as continuing coverage of certain European countries’ debt problems, make it difficult to gauge the level of U.S. debt as it relates to the nation’s economic health, according to a new paper from The Private Client Reverse titled, “Debt: A Problem in Perspective.”
“The long-term fiscal health of our country is on everyone’s mind, as well it should be,” says John De Clue, Chief Investment Officer for The Private Client Reserve. “So we thought it appropriate to provide additional information and insights on this important topic in response to our clients’ concerns.”
A Closer Look at the Debt
For perspective, the consensus among economists is that when a country's debt-to-GDP rises to a certain level, its economic growth tends to be impaired.
“The key to economic growth is robust savings andinvestment,” De Clue says. “Debt inevitably entailsthe payment of interest, and these interest payments represent funds unavailable for those activities that drive long-term growth in our economy.”
The number typically touted in the media is the United States’ “gross debt,” which is about $16.5 trillion or about 104 percent of GDP. That’s higher than Spain’s debt in relation to its economy (90 percent), and in the range considered to be a risk to future economic growth.
Another major concern is the amount of U.S. debt held by China — about $1.2 trillion, which is less than 10 percent of the nation’s total debt.