Research: the real size of the US public debt may be several times higher than the declared

The investment company AllianceBernstein estimated that the true debt of the United States is 1832%. The company took into account not only traditional levels of government debt, such as bonds, but also financial debt, as well as future liabilities for so-called payment programs, such as social and medical security, state pensions.

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“Although the picture is terrible, these numbers do not prove that we are doomed or that a debt crisis is inevitable,” said Philipp Karlsson-Schlesack, chief economist at AllianceBernstein in a report.

Warnings about potential debt hazards appear when total outstanding federal debt has grown to 22,5 trillion dollars, or about 106% of GDP. Excluding domestic obligations, household debt is 16,7 trillion dollars, or 78% of GDP.

“The US debt is big. And he is growing. But if we want to think about debt problems (in any sector — sovereign, household, firms, or financial institutions), then conditions, not levels, are more significant, ”Karlsson-Schlesak said. “Debt problems might have arisen already at lower levels of debt if macroeconomic conditions caused them.”

According to the latest forecasts by the Congressional Budget Office, this latter amount, which is considered more relevant as an economic burden, could rise to 105% by 2028 year. However, the US Congressional Budget Office notes that figures may be revised depending on government policy.

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Fiscal reform advocates argue that the impact of debt has indeed reached the point where action is needed.

“Throughout the world, we have become overly dependent on borrowing as a solution for everything. There are many political excuses for why this doesn’t matter, ”said Maya McGuinas, president of the responsible federal budget committee, bipartisan committee of legislators, business leaders and economists.

“We are fast approaching a situation where we dug a debt hole for ourselves, which has had a profound negative impact on the economy for probably decades to come,” added McGuinas.

In its calculations, AllianceBernstein takes debt obligations from various sources and compares them with GDP as follows:

• 100% of GDP using federal, state, and local government debt combined.
• 150% for households and firms.
• 450% for financial debt that carries “conceptual problems and risks”, namely that debt held by financial firms often presents potential in the worst case scenario using various derivatives that may have high contingent levels that are unlikely to ever will be implemented.
• 27% in trusts under social insurance programs.
• 484% that appreciates all the promises of existing social insurance programs.
• 633%, which makes up the “endless horizon” of social program obligations, not just the traditional 75 years used in computing.

This amount receives a debt burden around 2000%, although Karlsson-Schlesack indicates that different debts carry different risks.

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“A default on US Treasury bonds would be disastrous for the global economy - while policy changes (albeit painful for those whose future benefits were reduced) would hardly be fixed on the economic horizon,” he wrote.

Moody's Investors Service recently warned that an already growing number of companies with junk ratings could "dramatically increase" in the next recession, "significantly increasing the risk of default."

“Then, in the next downturn in the credit cycle, the generally lower credit quality of today's speculative population means that defaults may exceed the peak of the Great Recession for 14% of all rating issuers,” says Christina Pagett, Moody's Senior Vice President.

However, at present, credit default rates remain low, as economic conditions are favorable.

Similarly, at the macro level, fears of a recession turned out to be unfounded, as growth continues, albeit at a slower pace than in the 2018 year.

Maya McGuinhas from the responsible federal budget committee said that now is the time for the country to start doing something about the debt situation.

“Firstly, you begin to have politicians on a par with voters, instead of promising a freebie. Secondly, you acknowledge that the time for this is when your economy is strong, ”she said. “When people argued about more borrowing, they had to do the opposite. We are still not in a recession. It's time to use long-term strategies. ”

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