Going Behind the Debt Numbers

At more than $19 trillion, the federal debt’s size is indeed staggering. But keep in mind that the raw numbers do not tell the full story.

0:00 / 0:00

Transcript PDF

The government currently owes more than $13.5 trillion to the public. Foreign and international investors hold just more than $6 trillion in Treasury securities—a level that increased dramatically throughout the 2000s.

The difference between the $19 trillion and $13.5 trillion is $5.5 trillion in U.S. debt the government owes itself. Government-owned debt is similar to your taking a loan from your 401(k)—a default on a loan to yourself would not result in a default to your creditors and does not need to be financed in the public debt markets. The U.S. government holds its own debt in various trust funds, such as the Social Security and the highway trust funds.

How Large is Large? At $13.5 trillion, the debt the U.S. government owes the public is large enough to buy: 392 million new cars, Food for 1 billion families for a year, 1 college education per U.S. household.

1 Based on $34,428 average price in December 2015 from kbb.com.
2 Assumes each family comprises two adults and two children (6-8 and 9-11 years). Average $12,755/year cost from Official USDA Food Plans moderate-cost plan, March 2015.
3 Based on 124,600,000 households in 2015 from U.S. Census Bureau, four years at a public university, $20,846 cost in 2016, and assumed 3.3 percent increase per year. In-state costs include tuition, fees, books, and room and board (transportation and miscellaneous expenses not included.) Source: Trends in College Pricing ©2015 collegeboard.com, Inc. Figure shown has been rounded.

Procrastinating on Debt Management May Prove Costly

In the case of a country, the public debt-to-gross domestic product (GDP) ratio is an important measure of the government’s ability to pay its debt. Currently, the U.S. ratio is 74 percent— nearly double the 50-year average of 38 percent.

A high debt-to-GDP ratio increases the risk that investors might, at some point, begin to doubt the government’s ability or willingness to pay off the public debt. That could result in benchmark interest rates rising and drastic austerity measures being necessary to maintain creditor support of Treasury debt.

Even if debt-reduction measures are not implemented for several years, the economy would likely be better off if decisions were made sooner so that both individuals and businesses could plan for certainty of fiscal reforms.

While the U.S. currently has a debt level that is very high from an historical perspective, the danger zone for U.S. debt levels is not in the near term—but rather over the long term—should the debt burden continue to grow.

Download the Full Report

Global Investment Strategy (GIS) is a division of Wells Fargo Investment Institute, Inc. (WFII). WFII is a registered investment adviser and wholly-owned subsidiary of Wells Fargo & Company and provides investment advice to Wells Fargo Bank, N.A., Wells Fargo Advisors, and other Wells Fargo affiliates. Wells Fargo Bank, N.A. is a bank affiliate of Wells Fargo & Company.

The information in this report was prepared by Global Investment Strategy. Opinions represent GIS’ opinion as of the date of this report and are for general information purposes only and are not intended to predict or guarantee the future performance of any individual security, market sector, or the markets generally. GIS does not undertake to advise you of any change in its opinions or the information contained in this report. Wells Fargo & Company affiliates may issue reports or have opinions that are inconsistent with, and reach different conclusions from, this report.

This report is not intended to be a client-specific suitability analysis or recommendation, an offer to participate in any investment, or a recommendation to buy, hold or sell securities. Do not use this report as the sole basis for investment decisions. Do not select an asset class or investment product based on performance alone. Consider all relevant information, including your existing portfolio, investment objectives, risk tolerance, liquidity needs, and investment time horizon.

Wells Fargo Advisors is registered with the U.S. Securities Exchange Commission and the Financial Industry Regulatory Authority, but is not licensed or registered with any financial services regulatory authority outside of the U.S. Non-U.S. residents who maintain U.S.-based financial services account(s) with Wells Fargo Advisors may not be afforded certain protections conferred by legislation and regulations in their country of residence in respect of any investments, investment transactions, or communications made with Wells Fargo Advisors.

Special Reports

A collection of the most recent thematic reports from Wells Fargo Investment Institute that cover varying topics of interest and importance to investors.

Read Our Insights
CAR0716-00580
CEX1801