National Debt Is Soaring Relative to GDP

Is The Economic Foundation Of The U.S. Crumbling?

U.S. National debt as a percentage of GDP has been climbing steadily since 2000, and has seen exponential growth in the last two years.  At the current ratio of 83.5% debt to GDP, we are at a level not seen since the 1950s. This metric is presented in the chart below going back 90 years. 

By the end of 2010, this ratio is projected to be near 100% of GDP absent a dramatic shift in domestic budgetary policy.

As with any borrowing, the more a person, entity or company borrows, even the United States of America, the higher their cost of borrowing will go, all else being equal.  

Interestingly, the national debt of $12.17 trillion, actually excludes Fannie Mae and Freddie Mac debt. The U.S. government became the effective conservator of both of these entities with the Housing and Economic Recovery Act of 2008.  

The estimated combined on and off balance sheet debt of Fannie and Freddie is purported to be just over $5 trillion. 

Including this additional $5 trillion in debt, U.S. Government debt as a percentage of GDP is actually more than 120%. 

On that basis, U.S. government debt as a percentage of GDP is the highest ratio it has ever been, or at least since the numbers have been recorded, which is since 1792. Needless to say, both ever, and since 1792, are a long time.

Globally, this data hasn't been updated since 2008, but based on 2008 data, the U.S. has the 5th highest indebtedness as a percentage of GDP, just barely above Singapore and just below Jamaica, man.  The only other countries more indebted than the U.S., on this basis, are the economic stalwarts of Zimbabwe, Japan, and Lebanon. . .

Keep your eyes on U.S. government debt . . . this Queen Mary is not turning any time soon and will hold investment implications related to many asset classes for years to come. 

We cannot increase our debt exponentially without increasing our borrowing costs.