Alaric Securities celebrates at Nasdaq MarketSite
March 12, 2024 | Issue 55

Is Record-High US National Debt a Fiscal Time Bomb?

Nikolay Stoykov
Managing Partner at Alaric Securities
Visual representation of US national debt as a ticking time bomb, symbolizing potential fiscal instability

With the US National Debt ratio hitting 129% of GDP in 2022, as reported by Trading Economics, concerns intensified over the country’s financial stability. By the summer of 2023, Fitch’s downgrade of the US government debt underscored the gravity of the situation, primarily attributed to this staggering level of indebtedness. The question looming significant is whether the US government could potentially default on its debt in the future.

Examining US National Debt by Year

Many things are possible. However, let’s not rush into judgment before considering all the data. It is better to look at the US as a corporation so we can focus on the balance sheet. Looking at the US from a business perspective, we’ll explore its balance sheet, including all debts—whether from the government, public, or private sectors—as well as the overall value of its assets. Let’s examine the breakdown:

Year Total US Debt US National Debt US National Debt/US Total Debt US Total Assets US Total Debt/US Total Assets
2000 28.63 5.60 19.60% 44.60 64.20%
2001 30.73 5.90 19.20% 46.20 66.50%
2002 33.04 6.40 19.40% 46.10 71.70%
2003 36.01 7.00 19.40% 51.10 70.50%
2004 40.10 7.60 19.00% 57.90 69.30%
2005 43.54 8.20 18.80% 63.50 68.60%
2006 47.72 8.70 18.20% 68.40 69.80%
2007 52.69 9.20 17.50% 70.11 75.20%
2008 54.77 10.70 19.50% 61.30 89.30%
2009 54.26 12.30 22.70% 61.60 88.10%
2010 54.89 14.00 25.50% 66.10 83.00%
2011 55.82 15.02 27.20% 67.20 83.10%
2012 57.53 16.40 28.50% 72.10 79.80%
2013 59.45 17.10 28.80% 80.80 73.60%
2014 61.60 18.10 29.40% 87.00 70.80%
2015 63.28 18.90 29.90% 89.90 70.40%
2016 65.58 20.00 30.50% 94.90 69.10%
2017 68.59 20.50 29.90% 103.70 66.10%
2018 71.67 22.00 30.70% 104.30 68.70%
2019 74.86 23.20 31.00% 116.90 64.00%
2020 82.88 27.70 33.40% 131.40 63.10%
2021 88.36 29.60 33.50% 150.40 58.80%
2022 93.50 31.40 33.60% 143.60 65.10%

All numbers are trillions of dollars; Data is sourced from the Federal Reserve of St. Louis.

Analyzing US Debt-to-Asset Ratio Dynamics Over Time

Let’s ensure an accurate interpretation of the table data. In 2000, the total US debt value was 28.63 trillion USD. Of that amount, 5.6 trillion USD was government debt, which totaled 19.6% of the overall debt.

The value of all US assets – real estate, machinery, agricultural land, corporations (public and private), etc. was 44.6 Trillion USD.  In that respect, the Total Debt/Total Assets ratio was 64.2%.

Let’s now explore how that ratio has changed throughout the years. It stands out that the financial position of the US – the value of all assets relative to all liabilities- was cautious in 2009 and 2010. The ratio reached almost 90% during that period. The chances of default, especially corporate defaults, were quite real then.

However, as we go towards the last year, 2022, we can see that the ratio is relatively benign – at 65.1%. The percentage of debt has changed over those 20+ years – government debt is now about 1/3 of all debt, while in the early 2000s was about 1/5. However, the overall indebtedness of the US relative to assets is virtually unchanged.

Impact of Corporate Debt and Asset Values

The increase in national debt has not significantly affected the overall level of debt, as many of the corporations in the 2020s in the US practically have no debt. Transitioning to the corporate landscape, it’s evident that companies like AAPL, MSFT, META, and GOOG have virtually no debt, setting a new standard.

With their high net margins, avoidance of mergers or acquisitions, and substantial cash reserves, these tech giants systematically buy back their shares with profits. This practice not only maximizes after-tax returns for shareholders but also keeps the value of those companies high.

US National Debt to GDP Ratio

In conclusion, we will say that the level of US government debt relative to GDP is nearly 130%, which is a concern. However, that concern is mitigated by the fact that the value of all US assets is relatively high and growing faster than the Federal deficit or the level of the US Total Debt.

Of course, the US government can default one day, but given the high-value appreciation of US assets, we deem this scenario highly unlikely. Yes, many tech companies and tech billionaires pay very little in taxes nowadays, but all those assets can be taxed at some point in the future.


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