The national debt is much larger than most people think, $50 trillion instead of $15.7 trillion, a report by financial services firm Deloitte says. Besides the true debt, the report describes four additional risk factors that deserve attention when considering the extent of the U.S. debt crisis.
The federal government is currently adding about $4 billion per day to the national debt, which comes to about $750 per household per month.
The typical way of calculating the national debt would currently report over $15.7 trillion. This is how much cash is currently owed (including what the government owes itself). This number does not, however, take into account future unfunded liabilities, or payments that the federal government has already promised to make but does not have the revenue streams needed to make those payments. When measuring the national debt on this accrual basis, Deloitte says, the United States actually owes over $50 trillion.
(Last August, another economist, Laurence J. Kotlikoff, calculated the actual debt, including unfunded liabilities, and came up with an even larger number – $211 trillion.)
The second risk factor is that the size of the debt is highly sensitive to economic fluctuations. Plans to reduce the future growth of the national debt are based upon Congressional Budget Office (CBO) projections. Part of those projections is based upon what the CBO expects the economy to be like in the future. But because the national debt is so large, even small diversions from those economic projections could make significant differences in how much future debt the government will accumulate, the Deloitte report argues.
"A deviation of 1 percent of average GDP growth over the next decade increases or decreases the U.S. deficit by roughly $3 trillion on a cash basis over 10 years," Deloitte calculates.
Third, Deloitte believes that the debt could adversely impact the global competitiveness of U.S. companies.
The ballooning debt will necessarily lead to significant spending cuts and tax increases. Since the political leaders have demonstrated a preference for making cuts to government spending that helps economic competitiveness (infrastructure, education and research), Deloitte expects less spending in these areas. Also, the higher taxes will reduce competitiveness and higher federal debt will increase the borrowing costs for U.S. companies.
Fourth, Deloitte expects monetary policy to be less independent from political considerations. Congress and the president will pressure the Federal Reserve or make appointments to the Federal Reserve Board that will encourage it to keep interest rates low.
"Going forward, the United States government must explicitly decide to what extent it is willing to accept higher interest rates in the short term in exchange for more stable finances in the long term via the use of longer term debt."
While short term debt may benefit politicians who want to keep borrowing costs low until the next election, long term debt would be better in the long run, Deloitte believes, because it would shield the United States from rising interest rates.
Lastly, the Deloitte report argues that the United States cannot rely indefinitely on foreign borrowers willing to buy U.S. debt and thus enabling high rates of deficit spending.
Forty-seven percent of U.S. treasury bonds, not including those held by the U.S. government itself, is now held by foreign investors.
"Heavy reliance on foreign lenders exposes U.S. Treasury interest rates to fluctuations based on foreign appetites for treasuries," the report states.
Based upon these five risk factors, the report concludes that "America needs a bigger conversation that speaks directly to the American people about [the factors driving] our fiscal future. ... The sooner the debate widens to include the real risks posed by the debt, the sooner we can begin to solve these difficult problems."