THE BLOG
06/20/2010 06:54 pm ET Updated May 25, 2011

How Serious Is Our National Debt?

Maybe not as serious as you might think. Let me tell you why, looking at three sources, beginning with the October 24, 2009 issue of The Economist. The issue shows a projected American government debt as a percentage of our Gross Domestic Product (GDP) of about 100% in 2010. However, Japan will go to 230%!

Interestingly enough, the CIA Factbook has a table of essentially the same international comparison, but for 2008, with Zimbabwe at the top with a debt percentage of 266%. Japan is listed #2 at 172%. However, I couldn't find the USA until I reached #61 at 38%.

So what's going on? Easy, the CIA uses public debt, while everyone else used national or gross debt. Let's do a simple calculation. Our national debt is just over $12 trillion. Our GDP is $14.4 trillion, which results in a figure of 83%. The 2008 national debt was about $10 trillion resulting in a % of GDP ratio of 70%, with a 2010 estimate of $16.6 trillion debt and 98.1%.

Thus, yes, the American debt as a percentage of GDP is at around 100%, which is expected to edge up to 101% in 2011, then begin to drop. The expected continued low interest rates can only help a debtor, our government.

Expect, though, a policy uptick, for the health care measure will initially add more debt (just plain old common sense as 35 million or so more people will now need to be covered), but within the decade, when the public option finally kicks in to truly compete, the unacceptable growth rate of our national medical bill should be checked. If you're rich, you'll be hit twice: you'll subsidize much of this, and, so that you can cut in line for service, you will buy supplemental insurance.

Oh, by the way, also from Wikipedia:

The debt limit was most recently raised to $12.104 trillion by the American Recovery and Reinvestment Act of 2009 (H.R.1), which was signed into law on February 17, 2009 (P.L. 111-5).[11]

Is there a check and balance system in place or can our national debt keep going up forever? The answer is yes, for Congress needs to approve it, and yes, again, because it always does when asked by the President.

To go on, a look at a historical graph (from zFacts) shows that the all-time national high of 120% was attained at the end of the Second World War, but the current exponential slope looks damning. However, 83% or 100% is still nowhere close to Japan, which appears to be surviving at double our rate. I should mention without going into details that the Gross Domestic Product is about 10% lower than the Gross National Product, and the reason why we don't have exact agreement among sources is because of this discrepancy and the year being cited. Then, there is the CIA with only public debt.

This same graph shows that the Reagan-Bush (Senior) reign showed a doubling of our national debt/GDP percentage, while the Bush (Younger) years initiated the jump when Congress passed the initial bailout package in December of 2008 before Obama came into office. While we're at this, you should know that President Reagan, when he came into office in 1982 faced exactly the same predicament as Obama, for the second energy crisis in 1979 had discombobulated the economy. In 2009 dollars, Reagan got a $1.8 trillion recovery package, double that of Obama.

Finally, what about China? That same Economist article reports that China does own 24% of our foreign debt, but that Japan, a country with a 200% or so debt/GDP percentage, is at 20%. Actually, China recently dropped to 23% and Japan rose to 21%, and in 2007 this was not as bad as you might think, as foreigners only then accounted for about 25% of our national debt. 75% was owned by us. Thus, China's hold on our economy was actually less than 6%. But foreign ownership of our national debt has doubled, so China's grip is now at 11%.

But let them them bolt and invest in Zimbabwe (remember, their debt/GDP percentage is 266% -- and China has a platinum problem with this country today) instead. Yup, it is appearing that China is contemplating moving money from the U.S. into African, South American and Indonesian resources. It's a risk, but, think about it, would you rather trust the U.S. economy or gain sure access to world resources, which will only jump in prices over the next decade?

So, be mildly concerned about our escalating national debt, but there is no need to anguish. Consider Japan. Also, mostly ignore those editorials that regularly pop up throwing fear at you about China pulling out their money, causing an American depression. They probably will reduce their trust in our economy, but could run into greater difficulty dealing with many of those developing countries that now and then tend to nationalize their industries.