Friday, May 11, 2007

How indebted is the US?

11 May 2007

This time, with the help of Puru Saxena, I can provide more exact information on total US indebtedness.

The total value of the US stock market at the end of 2006 was $20.6 trillion dollars. The value of the total US housing stock was a similar amount. These two amounts (roughly $40 trillion) account approximately for the net worth of Americans (obviously this is a rough calculation, as there is considerable, and growing, international ownership of US assets, and Americans also own international assets).

Here is the problem - total US debt is higher still, at $48 trillion dollars, and it is rising exponentially. That is, you could use the value of the entire US stock market and every residence in the United States to make payments against US debt - and it would not cover the bill.

As we have discussed several times, the US is growing more indebted to the rest of the world at a rate exceeding $2 billion dollars per day, and this approaches $1 trillion per year.

Yes, the liquidity-fuelled economy is booming - but it is global citizens other than Americans (including Canadians) who will derive the ultimate benefit. You could argue that the United States is making the rest of the world rich. It is a dramatic finishing act for the nation which has been the primary driver of the global economy for a century or longer.

But this is the kind of place where things draw to a close, not where they begin - at least for the US economy. So long as the US dollar, now at long-term support, holds its value, the producing nations of the globe will benefit from America's largesse. And for many decades to come (3 decades in the case of long-term treasury bills), Americans will be footing the greatest part of the bill for continuing international economic growth.

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