National Debt

I'm getting a bit tired of reading about the mounting National debt without all the facts. These are the minimum facts that everyone should be armed with when confronting a national debt pundit.

First off the headline number for the national debt which is now somewhere in the $13 trillion range is known as the gross debt. A better measure of a country's debt is its net debt which excludes debts to the government's own agencies such as Social Security. It doesn't make much sense to count debts to yourself as debt. Don't forget, you would also have an asset (the debt receivable from yourself.) The entitlements granted by Social Security are another issue; however, excluding them is appropriate especially since we are not including future receipts of the program.

The national deficit is measured in nominal terms, or the amount it would take to repay the debt today. Fortunately the debt is not due today, and will actually be repaid well into the future. When inflation is taken into account then we can evaluate the debt in real terms, or the amount of future assets we will have to forgo to repay the debt. If we are truly expecting increased levels of inflation from the current stimulus activities, why not take out debt in today's dollars and repay in tomorrow's less valuable dollars.

Finally, the majority of US debt is denominated in US dollars which requires repayment in US dollars. As long as the US government retains is ability to print money, they will have the option to create dollars to repay their debts. This option of monetary policy includes significant inflationary drawbacks, although it remains an option.

Most national debt references are misleading and fail to take into consideration other aspects of a country's assets or monetary situations that have pervasive impacts on the relevance of national debt as a metric. Proceed with caution when national debt is in play, it's most likely a precursor to opinionated rhetoric.