On being U.S. debt-smart: Bet you don't know what country is in the most trouble. [Hint: it's not Greece!]

How national debt savvy are you?

Until a few days ago, talk about the United States national debt limit was in every newscast.  Many I know were wringing their hands for fear of national default, and the worry of a credit down-grade by Standard & Poors was something more people were familiar with than their own credit score.  For all the attention, I'm betting that most people have little insight as to the nature of the problem, who shares the stage with countries with poor balance sheets, and how to conceptualize this serious national problem.  Recently in my travels I ran across a great "table" that shows which the 10-most indebted developed countries are; I'll share that with you and some ways to think about what the U.S. is up against.  

Measured as a percent of GDP [gross domestic product--the value of everything attributable to what's "produced" by a country] the U.S. national debt can be put in useful perspective: the problem is serious, but a lot of other countries are in worse shape than we are.  In terms of it's absolute size, the amount is pretty large, but rivaled by a country much smaller than ours--and I bet most people would not be able to hazard a good guess as to which country that is.  Let me talk about both of these, one at a time.

Think about your debt based on your annual income?

First, the proportion of the national debt in the U.S. is virtually the same amount as the country's GDP; that means that if one could somehow monetize the value of all of what's accomplished in and by the United States, it's people and companies, the debt could, theoretically speaking, be paid off with just one year's worth of output.  This is equivalent to a person being in credit card debt for exactly the same amount as their annual salary. 

Of course that would be difficult for a person to do--because for most of us, it wouldn't be possible to pay all of one's income from a single year, just to pay off the credit cards; after all we need some money to pay other bills too.  [As it turns out, the same is true of countries as well!]  But it helps to get a sense of the enormous national debt obligation if you thought of the U.S.'s debt obligation as being as formidable as you holding credit card debt that equals the amount of money you make for the entire year.  Of course, the way you make the best sense of this calculation is for you to figure out how long--exactly how many years--might it take to pay off such a gigantic debt with feasibly discretionary funds.  The answer's the same for people and countries--a very long, long time!

How big is problem compared to everybody else?

The second way of thinking about national debt is the absolute amount which, for the U.S. is a little over $14 trillion dollars.  Do you know what other country rivals ours for owing such a big amount?  That country would be Japan with a total of $13.7 trillion. 

So why is such a fracas made out of the U.S. national indebtedness--when much smaller countries owe so much more, at least on a per capita basis?  The answer is simple, if not so obvious:  Virtually all of the Japanese obligations are owned by their own people, whereas about a third of our debt is owned by others--others outside of the U.S.  It's like this, when I borrow money from Bank of America, it's an entirely different--and more grave--arrangement than when I borrow money from my wife; both are important and worthy lenders to repay, but one can make my financial life and credit-worthiness a living hell--the other one can just raise hell!  

Why is the world's leading economy on the list in the first place?

As it turns out the U.S. is only--I say "only" as if it's not a big deal, which is far from being the case--the seventh-most indebted country in the world [as measured by proportion of GDP], but the company the country is in is not appealing: Who wants to have their economy emulate or compared to the financial performance of Greece, Italy, Iceland, Belgium, or Ireland?  Or even Japan?  

Nobody does, but now you know the perspective that's called for to appreciate the circumstances the U.S. is in--all so we can make our political process work to get "credit cards" paid down to a more respectable amount.    

Here's your one-page reading assignment.

By the way, before we dismiss class today, here's the table I promised at the beginning.  For homework, I recommend you print it out and study it for five minutes--if only to understand how far the problem has gone, to be on the list of shaky economies in the first place!  A good citizen should understand at least that.  

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Follow Keith's biz blog on Twitter for updates and see more of what he's reading about on his Facebook Page. If you are inclined, you can write him at kmurray@bryant.edu.