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Washington Post NYSE:WPO, US National Debt at $31-T

The US national debt is much larger than most think, argues Washington Post opinion writer Robert Samuelson.

The real national debt may be as much as 3 times what is generally believed, up to $31-T, and 202% of gross domestic product GDP, he writes. That is because federal loan guarantees, both explicit and implicit, are typically not included in debt estimates, he points out. They are “off-budget” items.

Politicians love those off-budget programs because they let them spend without increasing taxes, he says. But they also create enormous risk for the government.

The Real Debt Count; Treasury debt held by the public, the most commonly cited figure, is $11.3-T, 73% of GDP for the F-Y 2012, the highest since the end of World War II.

Gross federal debt is $16-T, or 103% of GDP. This includes debt held by the public plus debt held by government trust funds like Social Security. Many economists don’t use the figure, as it is like lending money to yourself.

Government loans and loan guarantees, as of Y 2011, amounted to $2.9-T, or 19% of GDP. Made to college students, farmers, veterans, small businesses and others, they are not included in the national debt, but the government is on the hook if borrowers default.

The government is also on the hook for $5.1-T of debt held by Fannie Mae and Freddie Mac, as well as $7.3-T of FDIC insurance protection on bank accounts.

If all the trust fund holdings, government loans and guarantees are included, the national debt is $31-T, 212% of GDP almost 3 times the conventional $11-T estimate.

Most borrowers will repay the loans in normal times, but when the financial crisis and recession hit, the government has to rescue banks and take over Fannie Mae and Freddie Mac.

“Something similar could happen again,” Mr. Samuelson warns. “A deep downturn could cause a cascade of defaults on ‘off-budget’ guarantees that require on-budget bailouts. The lesson: We should reject new off-budget commitments and curb some that already exist.”

Government loan guarantees typically have very small costs to taxpayers but large economic benefits, according to the Center for American Progress.

On average, every $1 allocated to loan and guarantee programs generates more than $99 of economic activity, argue John Griffith, an analyst at the Center, and Richard Caperton, the Center’s director of clean energy investment.

The government usually does a good job in estimating risks and most programs cost less than originally estimated, they assert.

“Conservative critics often portray a world in which government bureaucrats haphazardly issue loans and loan guarantees without considering taxpayer exposure to risk,” they state. “That’s simply not the case.”