How to Calculate the US Debt to GDP Ratio

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okubow's picture
okubow
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How to Calculate the US Debt to GDP Ratio

Hello everybody, I was just wondering if anybody could breakdown the US debt to GDP ratio calculation? Of course I do realize that the final number is determined by Debt/GDP. My problem is in calculating US debt, or more specifically, determining what it's composed of. I've read all sorts of different final ratio figures, from from 60% to 120% to 340% to 370% to 680% and I realize that I have no idea how to gauge the accuracy of any of these figures myself.

 

What I Know:

US GDP ~ $14.3 Trillion

Total Public Debt: $7.5 Trillion

Intragovernmental Debt: $4.3 Trillion

Total Public and Intragovernmental Debt: $11.8 Trillion

 

What I'm Confused About:

1. What exactly is "Total Credit Market Debt" as reported by the Federal Reserve and is this number included in the debt sum?

2. I've heard that consumer debt in the US is close to $13 Trillion. Is this included in the Debt/GDP ratio and where do I find this number?) Is this the $13.7 Trillion figure reported as "Total Outstanding Credit Market Debt Held by the Household Sector" in the Z.1 Report?

 

I'd really appreciate it if someone could walk me through the calculation step by step.

okubow's picture
okubow
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Re: How to Calculate the US Debt to GDP Ratio

Ooops, here are my sources . . . (I'll be sure to do this from now on)

GPD

Public and Intragovernmental Debt

Federal Reserve Numbers (e.g. Total Credit Market Debt)

okubow's picture
okubow
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Posts: 67
Re: How to Calculate the US Debt to GDP Ratio

No takers huh? Is it that nobody actually knows or nobody wants to explain it?

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Davos
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Posts: 3620
Re: How to Calculate the US Debt to GDP Ratio

Hello Okubow: I'll try to put some time aside to look for some links to better define your points. I'll be honest with you, the ratio of debt to earnings gets dicey when you factor in some other points, to wit:

  • GDP is baked, I'd estimate between 20% and 40% based on CM's Fuzzy Numbers
  • Also, we owe way more than the National Debt. Jim Puplava and John Williams had a discourse about this several weeks ago, it was pegged between 80 trillion and 100 trillion with Debt and Off Balance Sheet Obligations. IOUSA the book a year or so ago listed Social Security and Medicare Part A & D at 53 Trillion. The US Debt Clock (which might give you some answers) at www.usdebtclock.org shows that SS and Medicare to now be at 59 or 60 trillion. But, get this, Jim Quinn, who I have the utmost respect for, he in my book is up there with Puplava, Williams and CM, anyway Quinn pegs those two programs at 107 trillion, he adds in part B which to be forthright - I have no freaken clue what that part is.

That said: It would be interesting to do a worse case scenario on the mess. I'm sure we are more insolvent than Enron, and Enron looked good almost to the very end. I've watched "The Smartest Guys in the Room" (a documentary on Enron) and I've read up quite a bit on our accounting, the government makes Arthur Anderson look like quire boys. 

Also we have to look at the deficit. That IMHO is what matters more than the rest of this stuff. We can no longer borrow it, now we use QE to pay it. I'm sure our dollar is a brick.

Take care

okubow's picture
okubow
Status: Bronze Member (Offline)
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Posts: 67
Re: How to Calculate the US Debt to GDP Ratio

Hi Davos,

Thanks very much for the response. I agree that GDP is a cooked number and I'm inclined to believe that government accounting tricks make Arthur Anderson look like haloed saints.

If we think of national debt as $11.8 Trillion (as is stated by the US national debt clock and the department of the treasury), then the Debt to GDP ratio can be expressed as follows:

$11.8 Trillion/ $14.3 Trillion = 82.5%

If we think of national debt as total credit market debt (as defined by the Federal Reserve), then debt to GDP can be expressed as follows:

$52.8 Trillion/ 14.3 Trillion = 369.3%

Social Security and the other entitlement programs present a different problem based on my understanding. As politically unlikely as it may be, the government can change the rules of those programs at any time, in any way. They could declare some kind of national financial emergency and "sadly and solemnly" announce that retirees should only expect to receive $0.25 on the dollar in their SS payments for example. (Of course the implications of such a decision would be huge, politically speaking.)

You can't imagine the kind of reactions I get when I talk about the sad state of the US economy with friends and acquaintances. Close friends who know me and trust me drop their jaws and say "really?". A few friends are sadly seduced by mainstream propaganda and counter my arguments with the usual mainstream argument about the stock market being up and the US running in the red for years etc. A few people I know are utterly incredulous. Just recently an Israeli acquaintance practically shouted at me during a friendly poker game that the stock market "HAS GONE UP 80%!" He then went on to accuse me of being a whiner and implied that anyone not making money on US stocks was a cry baby. I can't even finish a sentence around some of these folks before they practically shout me down.

In my view the last crowd is hopeless. I told the Israeli guy the same thing I tell the rest of his lot; you should go ahead and put every penny you've got into the US stock market, prove me wrong, get rich and make as much money as they can.

The thing is, in some of these poker table, bar room, friendly sports matches and picnic discussions, fence sitters are present. I want to be able to give them some numbers to sink their teeth into and make up their minds for themselves.

These debt to GDP numbers are a good start. I wanted to run them by some other folks and verify them before I begin using them.

Thanks Again,

Orion

As an interesting aside the Israeli guy at the poker game went bust about four times (one time was thanks to a bet against me). He had to get bailed out all four times and even tried to steal chips from me when I wasn't looking. (There was no money involved in the game so I just laughed it off.)

 

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Davos
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Posts: 3620
Re: How to Calculate the US Debt to GDP Ratio

Hello Orion:

Well if I was going to take a stab at this I would do it like this:

11.8t + 59t +24t = 94.8t (debt + unfunded (robbed) obligations + bailouts and bailout promisses)

94.8t / 10t (GDP less 30% Enron/Arthur Anderson Accounting cook job) = 948%

Or we can plug in Jim Quinn's numbers

141t / 10t = 1410%

Another way to look at this is that all the debt is irrelevant - as long as they can fund it or service the borrowed money. Looking at it this way we are now taking in the door 2 trillion and we send 4 trillion out the door. We are monetizing (printing) last report 50%. I'm out on the road so I don't have the link but it is in the DD of the 21, 22, or maybe 23rd.

Two things to consider here:

  1. That money has been spent. In other words it has "velocity" (a word I despise)
  2. It is devaluing our dollar

Your right, they could cancel the obligations. I think that would equate to political suicide and would kill (literally) many elderly on very tight budgets.

If you listen to iDoctor's post of Ron Paul's son video one explains clipping and how it robs the elderly. I suspect that is the route they will take. It will zero out our debt, or bring it to pennies on the dollar. The problem we face when they do this is that the controlled slide could easily become a precipitous fall off a cliff with a sudden we wake up one day and they have officially devalued the dollar. IE They tell us bring us 10,000 old dollars and we will give you one new one. They could be our government .... or foreign governments could band together and set a new reserve currency. What if China did this and what if they backed the dollar to gold? IMHO the result will be the same.

I'm not the brightest bulb on the site, so to be pragmatic, my way of looking at it is pretty simple.  The Fed blew up the economy with too little regulation and too much money. Now they are going to blow up the dollar with even more money and even less regulation. Judging from what I see other governments aren't going to sit there like potted plants.

That is my simpleton view. I'm certain there are folks on this site who have more gray matter than me so I'm certain you'll get better answers.

Take care

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