US debt explained in plain terms: there is a large swath of US debt doomers out there. You see them on social media and in blog posts. They write things like “US Debt Hits All-Time High – Crash Coming!” or “Breaking News: Debt Levels At Record Highs Impending Doom!”

The Problem With Looking Only at the Liability Side

The issue with all of these posts is simple: the full balance sheet is rarely compared alongside it. Here’s one example: At the time of this writing, just 4 U.S. publicly traded companies make up HALF of the US debt alone. You can read the stat here:

“Coming out of the Great Financial Crisis the entire US stock market was worth around $10 trillion. Today the combined market cap of Nvidia, Google, Microsoft and Apple alone is almost $17 trillion.” – @awealthofcs

US Debt Explained: Assets vs. Liabilities

Now here’s where things get really interesting: Add in the remaining 2,500+ companies, then layer in the value of land, energy, IP, infrastructure, household net worth, and all other assets. Then remember this: a large portion of U.S. debt is held right here at home by pensions, institutions, banks, and the Federal Reserve. Meaning, the system largely finances itself.

If you’ve ever taken a loan out from yourself (some retirement plans allow this), then you understand how much this changes the picture. Paying yourself back is the best debt position to be in and it’s not even close.

Debt in isolation is a scary headline. Debt paired with productive assets, global demand for your currency, and the ability to refinance at scale with your own backing is a very different equation.

Let’s go a step further: Step back and look at the full balance sheet, not just the liability column.

What I mean is, people don’t panic because Apple has a little debt. It is flush with cash, assets, free cash flow, and IP. The debt might be at a record high, but compared to the entire cash flow machine that it currently is, and the assets it holds, it is only a fraction of the entire picture.

Key Facts That Put the US Debt in Context

• U.S. household net worth is over $150 trillion (this is almost 5x more than the current debt)
• Total U.S. assets (real estate, equities, businesses, resources) are multiple times GDP
• The majority of Treasury debt is held domestically (pensions, banks, mutual funds, the Federal Reserve)

The Bottom Line

Judging U.S. debt without the asset side is like valuing a company off liabilities alone – it’s incomplete, and usually leads to bad decisions. I felt compelled to write this post because of the never ending panic and fear mongering that comes with debt and the viral social media posts it can create. This post is intended to bring some clarity to that narrative. On a final note, I am not saying debt is good. Nor am I saying it should continue. I am simply wanting to bring a more balanced discussion to the entire topic.

On to the next viral trend to debunk in finance!

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