There’s no such thing as “your share of the national debt.” That’s not how it works. Why not? Because debt – whether it’s household, business or U.S. government debt – makes sense only in the context of balance sheets. Balance sheets balance because every entry on one side of the ledger has an equal and corresponding entry on the other side of the ledger. Which means that for every debt, there is an equal, offsetting asset. There’s nothing cloudy about it. That’s a definition.
Reporters encircle House Speaker Kevin McCarthy, R-Calif., on Thursday as debt limit negotiations continue. While negotiators said Friday that talks were progressing, publicly, neither side seems to be backing down. J. Scott Applewhite/Associated Press
Most folks reading this have had car loans and/or mortgages. When you get a loan (that’s your debt), the bank creates for itself an asset exactly equal to the value of the debt created.
So the $32 trillion of national debt is matched exactly by $32 trillion of assets. Those assets are the various government bonds that are bought and sold on open markets every single day. Why do virtually all other nations, banks, corporations, insurance companies, billionaires and pension funds hold U.S. government debt? Because until the current MAGA hysteria over the debt ceiling (and the prior Republican meltdown in 2011), those financial instruments – U.S. government bonds – were considered the absolutely safest asset in the whole world.
If you were the chief financial officer of an entity worth trillions, what would you do with all that loot? Bury it in the backyard? Hide it under the mattress? Stick it in your savings account? Purchase shares in gold mines? Hold the government bonds of Russia, Saudi Arabia or China? I don’t think so.
It remains the fact that no other nation has as reliably paid its debts as the U.S., and no other nation’s currency has been as treasured as a safe haven as the U.S. dollar. In short, hysteria over the nation’s debt is a MAGA hissy fit over $32 trillion in assets. Whose assets? Yours, mine, Microsoft’s – everybody has a stake in that $32 trillion. Not an illusion, those assets are real.
When financial institutions make decisions about credit worthiness, they look at two things. First, does Borrower X have a strong record of repaying what they owe? Second, is the income of Borrower X large enough to support that debt?
For the United States of America, the answer to the first question is a resounding yes. For over 250 years, the USA has made good on all debts incurred, regardless of why they were incurred or which political administration created it.
It’s equally true that the U.S. has more than enough income to support its debt. This is where so many freak out, because the debt numbers are ginormous and scary compared to the economic status of ordinary households. If you’ll bear with me, some context will calm your fears.
The U.S. national debt stands at $32 trillion ($32,000,000,000,000). And what is the nation’s income? Some $24.5 trillion ($24,500,000,000,000). Let’s defang those stratospheric numbers and make them relatable – kinda-sorta.
Imagine your household earned $245,000 per year. (That would be nice, wouldn’t it?) Now imagine you’re at the bank seeking a 30-year mortgage for $320,000. Would the bank be worried that you’re borrowing too much? Nope, just the opposite. Most bankers would suggest you buy a bigger, more expensive house, given the rule of thumb that your home should cost three to five times your annual household income.
Debt hysteria is yet another MAGA illusion – don’t fall for it.
“We’ve looked at debt from both sides now / Our assets grow yet still somehow. / The debt’s so bad we all should bow to MAGA’s toxic sacred cow. / Let their illusions hold no sway. McCarthy’s clouds get in the way. / The nation’s strong so we can pay. Our bills tomorrow and today. / Shake your head and do recall: The MAGA don’t know debt at all.”
(Sincerest apologies to Joni Mitchell.)
Send questions/comments to the editors.
Comments are no longer available on this story