US Debt to GDP
Key Takeaways
- The Debt-to-GDP ratio compares a country's total debt to its economic output (GDP).
- This page breaks down the ratio for Federal, Corporate, and Household debt in the United States.
- Historically, the ratio increases during wars and economic recessions. Understanding this metric is key to assessing a country's financial health.
Federal Debt to GDP
Interpretation
A nation's debt is commonly expressed as a ratio to its gross domestic product (GDP) to facilitate meaningful comparisons over time. The total public debt, as depicted in the above chart, represents a form of government federal debt that encompasses both "debt held by the public" and "intragovernmental holdings." Several factors influence the federal public debt, including government spending, tax policies, economic conditions, and interest rates. Budget deficits arise when government expenditures exceed revenues, resulting in an increase in the public debt. Conversely, budget surpluses can help reduce the debt burden. The management of federal debt falls under the purview of the Department of the Treasury, which regularly conducts auctions of treasury securities to meet borrowing requirements. These securities are purchased by a range of investors, including individuals, financial institutions, foreign governments, and central banks, effectively lending money to the government. It's worth noting that historical trends show an increased ratio during periods of war and economic recessions.
Other popular classifications of debt are corporate and household debt (see charts below).
Renowned investor Ray Dalio identified a long-term debt cycle, a cyclical pattern that typically spans 75-100 years. In his research, Dalio has analyzed the total debt in the United States, encompassing public, corporate, and private debt, dating back to 1920. For further details, you can refer to Ray Dalio's publication "Principles For Navigating BIG DEBT CRISES" on page 13.
Data Sources
- Recent data
- FiscalData: Total Public Debt Outstanding (since 1993)
- Federal Reserve Bank of St. Louis: US Gross Domestic Product (since 1947)
- Historical data
- Federal Reserve Bank of St. Louis: Federal Debt: Total Public Debt (from 1965 until 1993)
- FiscalData: Historical Debt Outstanding (until 1964)
- Congressional Budget Office: Historical Gross Domestic Product
Further Information
- Congressional Budget Office: Historical Data on Federal Debt Held by the Public
- Wikipedia: National debt of the United States
- Treasury Direct: Frequently Asked Questions about the Public Debt
- Ray Dalio on the long-term credit cycle: (Video) How The Economic Machine Works and BIG DEBT CRISES
- Federal Reserve Bank of St. Louis: Who's buying Treasuries?
Corporate Debt to GDP
Interpretation
Non-financial corporate debt excludes debt from companies in the financial sector. It generally includes bank loans and corporate bonds that were issued to raise money.
Data Sources
- Federal Reserve Bank of St. Louis: Nonfinancial Corporate Business; Credit Market Instruments; Liability
- Federal Reserve Bank of St. Louis: US Gross Domestic Product
Further Information
- Financial Times: Definition of non-financial debt
Household Debt to GDP
Interpretation
Household debt includes different types of debt, such as home mortgages, home equity loans, auto leasing loans, student loans, and credit card debt. The ratio rose gradually until 2008. US households made significant progress in deleveraging (reducing debt) during and after the financial crisis.
The actual burden of all this debt can be illustrated by debt service payments as a percentage of Disposable Income.
Data Sources
- Federal Reserve Bank of St. Louis: Household Debt
- Federal Reserve Bank of St. Louis: US Gross Domestic Product
Further Information
- Wikipedia: Household debt
- Ray Dalio: BIG DEBT CRISES
- Federal Reserve Bank of St. Louis: Household Debt to GDP