A Seldom-Discussed Perspective on US Debt

We have seen plenty of chatter about US debt lately, with most attention on an allegedly over-indebted US government and corporations. In our view, much of the commentary fails to consider the issue properly. Pundits usually focus on the absolute level of debt, getting hung up on big numbers. But debt doesn’t exist in a vacuum. Most entities—governments, households, companies—have assets as well as liabilities. As a result, we think the most illuminating way to view debt is by looking at the entire nation’s balance sheet. Our founder and Executive Chairman, Ken Fisher, shared this concept in his 2006 book, The Only Three Questions That Count, presenting an aggregate hard balance sheet of all US assets and liabilities. Of course, in the intervening 12 years, America has tacked on nearly $12 trillion more net public debt and almost $9 trillion more corporate debt. So how does the balance sheet look now?

As Exhibit 1 shows, it still looks great. America’s total assets still dwarf total debt, and total net worth has grown from about $60 trillion then to over $108 trillion now. (In this calculation, checking and savings accounts count as liabilities as they are technically considered bank debt.) The debt-to-equity ratio (debt divided by net worth), 82%, is down a hair from 2006’s 83%. GDP divided by total assets—a quick and dirty way to measure return on assets—is about 10%, far above prevailing interest rates. As Ken wrote in 2006, if return on assets beats borrowing costs, that is a strong indication debt isn’t too high. The government, households and businesses alike have plenty of bandwidth. Now, that doesn’t mean we advocate American businesses, consumers and the government ratchet up debt and spend like the proverbial drunken sailor. Just a way to say that this likely isn’t a crisis brewing.

Exhibit 1: A Complete Look at America’s Assets and Liabilities